NLRB Rules Severance Agreements with Confidentiality Provisions Violate Employee NLRA Rights

What Happened

The National Labor Relations Board (“Board” or NLRB) decided in McLaren Macomb, 372 NLRB No. 58 (2023) that an employer violated the National Labor Relations Act (NLRA) by offering furloughed employees severance agreements that contained confidentiality and non-disparagement provisions. “A severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their [NLRA] rights, and that employers’ proffer of such agreements to employees is unlawful,” announced the Board.

Most private sector employers in the United States are covered by the NLRA, irrespective of whether their workplaces are unionized. The NLRA provides both union and non-union employees with the right to engage in protected concerted activities and the right to refrain from such activities. Such activities include the right to discuss terms and conditions of employment with co-workers, publicly protest unfair working conditions, and join labor unions. Employees also have the right to file unfair labor practice (“ULP”) charges with the NLRB and cooperate in Board investigations.

The NLRB concluded that the severance agreements at issue in McLaren Macomb were unlawful because they had a reasonable tendency to interfere with, restrain, or coerce employees in exercising their rights under the NLRA in light of the confidentiality and non-disparagement provisions. The confidentiality provision broadly prohibited the employees from discussing the terms of the agreement with anyone, which would include the NLRB and other employees. The non-disparagement provision broadly prohibited the employees from making statements that could harm the employer, related entities, and individual employer representatives without any temporal limitation.

In rendering the decision, the NLRB overruled Baylor Univ. Med. Ctr., 369 NLRB No. 43 (2020)¹and IGT d/b/a Int’l Game Tech., 370 NLRB No. 50 (2020). In those cases, the Board decided that employers did not independently violate the NLRA simply by presenting employees with severance agreements containing non-assistance, non-disclosure, and non-disparagement provisions that arguably restricted NLRA rights absent some additional circumstances.

Employers must keep the decision in McLaren Macomb in mind when drafting and presenting severance agreements to employees. This includes severance agreements for both union and non-union employees.

A Summary of the Decision in McLaren Macomb

Factual Background

The employer operates a hospital in Michigan and employs over 2,000 employees. Following a union election in August 2019, the NLRB certified a labor union as the exclusive collective bargaining representative of about 350 service employees at the hospital.

Approximately six months after the union election, in March 2020, the government issued COVID-19 regulations that limited the employer’s operations. The regulations prohibited the employer from performing elective and outpatient procedures, and from allowing nonessential employees to work in the hospital. As a result of these restrictions, the employer terminated its outpatient services and eventually permanently furloughed 11 employees who were represented by the union.

The employer offered the permanently furloughed employees severance agreements. As is typical, each severance agreement provided the employee with consideration in exchange for a waiver of the right to bring certain legal claims. The severance agreement further required the employee to keep the terms of the agreement confidential and prohibited the employee from disparaging the employer, related entities, and individual representatives. In the event an employee breached the confidentiality or non-disparagement provision, the severance agreement stated that the employer could obtain injunctive relief and that the employee would be responsible for damages to the employer, including attorneys’ fees. The confidentiality, non-disparagement, and injunctive relief provisions read as follows:

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.

8. Injunctive Relief. In the event that the Employee violates the provisions of paragraphs 6 or 7, the Employer is hereby authorized and shall have the right to seek and obtain injunctive relief in any court of competent jurisdiction. If Employee individually or by his/her attorneys or representative(s) shall violate the provisions or paragraph 6 or 7, Employee shall pay Employer actual damages, and any costs and attorney fees that are occasioned by the violation of these paragraphs.

At the time the employer provided the employees with the severance agreements, the employer was testing the validity of the union’s August 2019 election victory. The employer did not give the union advance notice of the permanent furloughs or that it would offer the employees severance agreements. The employer did not provide the union an opportunity to bargain over the furlough decision or the effects of the decision. And, the employer did not include the union in its discussions with the employees about the severance agreements.

Procedural History

The union filed a ULP charge against the employer, claiming that its conduct with respect to the furloughs violated the NLRA. The general counsel issued a complaint stemming from the charge.

A hearing was held before an Administrative Law Judge (“ALJ”), who concluded that the employer violated the NLRA by failing to notify the union about the furlough decision, failing to provide the union an opportunity to bargain about the decision and the effects of that decision, and directly dealing with the employees about the furlough decision. The ALJ decided the employer did not separately violate the NLRA by offering the severance agreements to the employees. Regarding this ruling, the ALJ looked to the decision in Baylor and IGT. The ALJ said, “[t]he agreements were voluntary, only offered to separated workers, and did not impact their previously accrued benefits.” Despite the conclusion that the employer violated the NLRA by failing to involve the union in the furlough decision, the ALJ further stated, “[t]his case also does not involve . . . other circumstances interfering with [NLRA] rights . . . ”

Both the employer and the general counsel filed exceptions to the ALJ’s decision. The general counsel’s exceptions argued, for the first time, that the Board should overrule Baylor and IGT.

Board Decision

The NLRB agreed with the ALJ, deciding the employer violated the NLRA by failing to notify the union about the furlough decision, by failing to provide the union an opportunity to bargain about the decision and the effects of that decision, and by directly dealing with the employees. The Board disagreed with the ALJ’s conclusion that the employer did not separately violate the NLRA by offering the severance agreements to the employees. In doing so, the NLRB overruled Baylor and IGT.

The Board claimed that the decisions in Baylor and IGT were problematic to the extent they stand for the proposition that an employer cannot violate the NLRA merely by offering a severance agreement to employees absent a finding that the employer otherwise violated the NLRA and harbored animus toward rights protected by the NLRA. The NLRB held that the mere offering a severance agreement to employees is an independent violation if the agreement’s terms have a reasonable tendency to interfere with, restrain, or coerce employees in exercising their NLRA rights, irrespective of any other circumstances. The Board opined that this standard was consistent with long-standing NLRB precedent.

The Board decided that the confidentiality and non-disparagement provisions at issue were unlawful because they had a reasonable tendency to interfere with, restrain, or coerce employees’ exercise of their NLRA rights. As to the confidentiality provision, the NLRB said that the provision broadly prohibited an employee from disclosing the agreement to any third-party, which would include the Board and other employees. The NLRB highlighted that it is against public policy to prohibit individuals with knowledge of ULPs from cooperating with the Board and that employees have the right under the NLRA to discuss their terms and conditions of employment with each other. Regarding the non-disparagement provision, the NLRB faulted the provision for prohibiting an employee from making any statement that could disparage or harm the image of the employer, related entities, and individual employer representatives without any temporal limitation. The Board emphasized that “[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the [NLRA].” It explained that employees can exercise NLRA rights both inside and outside the workplace, including in political forums and the media.

In rendering its decision, the NLRB mentioned that not every provision in a severance agreement that arguably interferes with NLRA rights is unlawful. The Board explained that the standard it set forth examines whether the relinquishment of NLRA rights is a permissible “narrowly tailored” one. In this regard, the Board footnoted:

We are not called on in this case to define today the meaning of a ‘narrowly tailored’ forfeiture of [NLRA] rights in a severance agreement, but we note that prior decisions have approved severance agreements where the releases waived only the signing employee’s right to pursue employment claims and only as to claims arising as of the date of the agreement.

Dissent

A dissenting Board member criticized the decision in McLaren Macomb on numerous grounds. The Board Member claimed the NLRB decision to overrule Baylor and IGT was merely “dicta.” The dissent explained that it was not necessary for the Board to overrule Baylor or IGT because the offering of the severance agreements in McLaren Macomb constituted an NLRA violation under Baylor and IGT as the employer committed ULPs by failing to involve the union in the furlough decision. The Board Member pointed out that the general counsel did not even argue to overrule Baylor and IGT until filing exceptions to the ALJ’s decision, further questioning whether it was appropriate for the NLRB to overrule Baylor and IGT. In addition, the dissent disagreed with the Board’s conclusion that Baylor and IGT were contrary to long-standing precedent. The dissent noted that neither Baylor nor IGT overturned NLRB cases coming before them, “but merely declined to continue to apply the overboard holdings contained therein to cases involving a significantly different factual scenario.” The dissent also faulted the Board for applying the “reasonable tendency to interfere” standard borrowed from a currently outdated standard set forth in Lutheran Heritage Village-Livonia, 343 NLRB 646 (2004) to evaluate facially neutral work rules in analyzing the facially neutral provisions in the severance agreements at issue.

Tips and Takeaways for Severance Agreements Moving Forward

Employers routinely use severance agreements to provide separated employees with additional pay and benefits above and beyond what they otherwise would be entitled. It is not uncommon for an employer to include language in a severance agreement requiring the employee to keep certain information confidential, preventing the employee from disparaging the employer, and limiting the employee’s right to pursue claims against the employer. In assessing whether to include such language in severance agreements moving forward, employers should consider the following:

1. Is the employee at issue a statutory employee under the NLRA to whom the decision in McLaren Macomb applies? The NLRA applies to most private sector employers in the United States and protects union and non-union employees alike, but not everyone is a statutory employee. For example, individuals who meet the definition of a statutory supervisor because they exercise independent discretion to take certain employment actions, such as hiring, disciplining, or discharging employees, are not statutory employees.
2. How important is it to include language that arguably interferes with NLRA rights (e.g., confidentiality and non-disparagement provisions) in the severance agreement? Employers should carefully consider whether they actually need to include potentially problematic provisions in a severance agreement. What’s the risk the employee actually would engage in conduct the employer prefers that the employee not engage? And, if the employee engages in such conduct, how detrimental would it be to the employer? For example, confidentiality may not be important at all if the severance agreements are standardized, the severance agreements are provided in connection with a widely publicized reduction-in-force, and/or the employees do not have any confidential company information due to the nature of their job.
3. If the language is important for the employer to have, is there a way to narrowly tailor the provision so that it could be upheld under McLaren Macomb? The decision in McLaren Macomb recognized that language in a severance agreement that interferes with NLRA rights can be lawful if narrowly tailored. Can any restriction on the right to bring claims against the employer be limited to claims that the employee signing the agreement could bring? Are there temporal limitations for the restrictions that the employer can spell out in the agreement? Can the confidential information and disparagement be defined narrowly so as to pass muster under McLaren Macomb? As the Board footnoted in its decision, how narrowly tailored the provisions must be remains an open question, although it specifically mentioned that the NLRB previously has “approved severance agreements where the releases waived only the signing employee’s right to pursue employment claims and only as to claims arising as of the date of the agreement.”
4. Consider disclaimers stating that nothing in the agreement interferes with the employee’s NLRA rights. At a minimum, such disclaimers should make clear that the employee can exercise rights to engage in protected concerted activities, file ULP charges with the NLRB, assist others in filing ULP charges, and cooperate with a Board investigation. Whether these disclaimers ultimately can save the day will be determined, but they certainly would not do harm.
5. Review agreements. Employers should work with legal counsel to potentially update their standard/template severance and separation agreements and/or incorporate disclaimers into those agreements.

Conclusion

The decision in McLaren Macomb makes clear the Board will be critical of any language in a severance agreement that arguably interferes with employees’ rights under the NLRA. As a result, employers must keep this decision in mind when drafting and presenting severance agreements to employees protected under the NLRA. 
 

¹ Hunton Andrews Kurth LLP’s Amber Rogers represented Baylor in this case.