March 17, 2023
On February 21, 2023, the National Labor Relations Board ruled that confidentiality and non-disparagement clauses in severance agreements with unionized and non-unionized non-supervisory employees are unlawful. The recent decision, McLaren Macomb, overturned settled precedent that employers could lawfully include confidentiality and non-disparagement clauses in severance agreements with non-supervisory employees, unless the circumstances under which the agreements were offered were coercive.
McLaren Macomb Decision
In McLaren Macomb, a Michigan Hospital permanently furloughed employees who were deemed nonessential during the COVID-19 pandemic. The furloughed employees were given a “Severance Agreement, Waiver and Release” that included provisions broadly requiring confidentiality about the agreement and prohibiting disparagement of the employer:
6. Confidentiality Agreement. The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.
7. Non-Disclosure. At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee’s employment. At all times hereafter, the Employee agrees not to make statements to Employer’s employees or to the general public which could disparage or harm the image of Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.
Although these kinds of provisions were previously respected in severance agreements with non-supervisory employees, the McLaren Macomb Board concluded that the hospital’s confidentiality and non-disparagement provisions interfere with, restrain, or coerce employees’ exercise of their Section 7 rights under the National Labor Relations Act, thereby rendering the provisions unlawful. Moreover, the Board was concerned about the “chilling effect” that confidentiality and non-disparagement clauses can have on non-supervisory employees. It stated that an employer violates the Act simply by offering to non-supervisory employees a severance agreement with such clauses; [w]hether the employee accepts the agreement is immaterial.”
Employers may still include confidentiality and non-disparagement clauses in severance agreements with supervisory employees (i.e., supervisors, managers, and independent contractors). With respect to non-supervisory employees, employers essentially have the following options:
Employers should contact legal counsel to discuss their options in light of the Board’s decision and the particular facts and circumstances of the situations they may be facing. Furthermore, in its decision, the NLRB did not address the status of severance, employment, confidentiality, non-disparagement, and other agreements that have already been entered into with non-supervisory employees. Thus, employers with questions about those agreements should also contact legal counsel.
There will undoubtedly be more developments with respect to this area of the law. The NLRB’s decision will likely be appealed. Moreover, future NLRB decisions will probably provide guidance to employers about confidentiality and non-disparagement clauses when it comes to non-supervisory employees. In addition, the Board’s decision will likely apply to other agreements with non-supervisory employees, such as employment, confidentiality, and settlement agreements. Finally, because of the political make-up of the NLRB, it is quite possible that, if a Republican is elected President, a newly-constituted Board may overrule or limit McLaren Macomb.