National Labor Relations Board Reverses Course: Confidentiality & Non-Disparagement Clauses in Severance Agreements Violate Employees’ Rights

CATEGORY: Special Bulletins
CLIENT TYPE: Nonprofit, Private Education
AUTHOR: Madison Tanner
PUBLICATION: LCW Special Bulletin
DATE: Feb 24, 2023

In a decision issued on February 21, 2023, and in a significant departure from prior precedent, the National Labor Relations Board (NLRB) ruled that confidentiality and non-disparagement clauses in a severance agreement impermissibly interfered with the employees’ Section 7 rights under the National Labor Relations Act (NLRA).

Due to COVID-19 related restrictions, the McLaren Macomb Hospital terminated its outpatient services and permanently furloughed eleven employees. The Hospital offered all eleven employees a Severance Agreement, Waiver and Release in which the Hospital agreed to pay the employees severance in exchange for each employee signing the Agreement. Each Agreement included a confidentiality provision that prohibits the employee from disclosing the terms of the Agreement to any third party, except a spouse or professional advisors, and also included a non-disparagement provision that prohibits the employee from making statements which could “disparage or harm” the image of the Hospital or the Hospital’s officers, directors, employees, agents, representatives and affiliated entities.

The NLRB reversed course on its prior precedent which had generally permitted the use of confidentiality and non-disparagement clauses in severance agreements. The NLRB explicitly stated it abandoned its prior rule that “granted employers carte blanche to offer employees severance agreements that include unlawful provisions” and returned to precedent that employers may not require employees to broadly waive their rights under Section 7 of the NLRA.  In issuing its ruling, the NLRB stated that the confidentiality provision would have an impermissible chilling effect on an employee’s exercise of his or her rights. As to the non-disparagement provision, the NLRB found that making statements about the workplace are central to an employee’s rights under the NLRA. The NLRB concluded that both the confidentiality and non-disparagement provisions were unlawful and offering these agreements to employees was also unlawful.

Note: This NLRB decision is one of several legal developments during the last few years that impacts language used in severance agreements. Employers should exercise caution to avoid language in severance agreements that restricts an employee’s rights under the NLRA.

Also note, that managers and supervisors are not covered under the NLRA.

Please consult your trusted legal counsel for assistance in drafting severance agreements. Please also consult your legal counsel to determine which employees qualify as managers and supervisors that are not covered under the NLRA.

 McLaren Macomb, 372 NLRB No. 58 (2023)

Liebert Cassidy Whitmore attorneys are closely monitoring developments in relation to this Special Bulletin and are able to advise on the impact this could have on your organization. If you have any questions about this issue, please contact our Los Angeles, San Francisco, Fresno, San Diego, or Sacramento office.