News & Thought Leadership from Sulloway & Hollis

February 24, 2023

NLRB ruling makes offering severance agreements with confidentiality and nondisparagement provisions unlawful 

Employers beware!  On February 21, 2023, the National Labor Relations Board (Board) declared that severance agreements containing confidentiality and nondisparagement clauses unlawfully interfere with employee rights.  The decision applies to the enforcement of both fully-executed severance agreements that contain those terms, and agreements that are merely offered to employees.  These significant changes impact both union and non-union employers, and alter how many severance agreements should be drafted.

What you should know

The decision is McLaren Macomb, 372 NLRB No. 58 (2023).  The Board analyzed Section 8(a)(1) of the National Labor Relations Act (Act) to determine if severance agreements offered to furloughed employees prohibiting them from disparaging the employer or disclosing the agreement terms were unlawful.  The Board held “Examining the language of the severance agreement here, we conclude that the nondisparagement and confidentiality provisions interfere with, restrain, or coerce employees’ exercise of Section 7 rights. Because the agreement conditioned the receipt of severance benefits on the employees’ acceptance of those unlawful provisions, we find that the Respondent’s proffer of the agreement to employees violated Section 8(a)(1) of the Act.”  Specifically, the Board declared that the broad nondisparagement clause at issue interfered with the employees’ ability to publicly discuss terms and conditions of work as protected under the Act, and the confidentiality clause barring discussions with any third party impermissibly precluded disclosing unlawful terms in the agreements.

What you should do

Immediately reconsider standard severance terms relating to confidentiality and nondisparagement, and avoid offering agreements with these prohibited provisions.  Consider modifying, or at least not enforcing, such terms in existing agreements executed within the six-month statute of limitations for unfair labor practices.  Recognize that this ruling does have some limits; for example, managerial employees, temporary employees, and supervisors as defined by the Act, are excluded from the enforcement order, and there is a suggestion that narrowly tailored provisions or provisions with broad disclaimers/carve-outs may be appropriate in some circumstances.  But proceed carefully, as this ruling and the Federal Trade Commission’s proposed rule banning noncompetes are clear administrative signals that employer protections will be more narrowly construed going forward.

The Sulloway Labor & Employment team is ready to help.  Contact Bill Pandolph or Chris Pyles if you have questions or need assistance with this issue or other employment matters.