On February 21, 2023, the National Labor Relations Board issued a landmark decision in McLaren Macomb that has the potential to seismically change how employers approach and manage employee separations that include severance packages. Overturning well-settled precedent, the Board held in a stunning decision that severance agreements containing non-disparagement and confidentiality provisions are unlawful under the National Labor Relations Act.
The issue presented in McLaren Macomb was whether the severance agreement that the respondent-employer offered to 11 employees violated the NLRA. Specifically at issue were the following two provisions:
- 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 a 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.
- Non-Disclosure. At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential 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 parents and affiliated entities and their officers, directors, employees, agents and representatives.
In Tuesday’s ruling, the Board held that these standard, run-of-the-mill severance agreement provisions do indeed violate Section 8(a)(1) of the NLRA. In reaching this conclusion, the Board majority concluded that prior rulings on this issue improperly conditioned a finding of unlawful coercion on factors outside the language of the agreement itself, such as whether the employer proffered the agreement in coercive circumstances and whether the employer harbored animus against Section 7 activity. The majority couched its decision to overrule Board precedent, explaining that the Board would “return to the prior, well-established principle that a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights, and that employers’ proffer of such agreements to employees is unlawful.
Using this framework, the Board then held that both provisions substantially interfered with employees’ Section 7 rights. Given the broad nature of the non-disparagement provision at issue, the majority argued that the non-disparagement provision would unlawfully prohibit employees from publicly criticizing employer policies, including asserting that the employer had violated the NLRA, and raising complaints about the employer with former coworkers, their union, government agencies, the media, or the general public. Similarly, the majority reasoned that the confidentiality provision would unlawfully prohibit the employee from discussing the terms of the severance agreement with former or future coworkers or unions, or even disclosing the existence of an unlawful agreement provision to the Board.
The lone dissenting Board member argued that the majority had mischaracterized and unnecessarily overruled “sound law” established by two 2020 decisions. He nevertheless found the that proffering the severance agreements was unlawful under such precedent because the employer had unlawfully bypassed the employees’ union on the permanent furlough and severance agreement issues.
The Board did not address whether including explicit carve-outs for Section 7 activity in the severance agreements would have been sufficient to render them lawful.
In light of this decision, employers should re-evaluate their severance agreements and practices. If you have any questions on this decision, need assistance developing policies and procedures to adjust for such changes, or have other questions regarding your workforce, please contact Betty Graumlich at firstname.lastname@example.org, Mark Goldstein at email@example.com, Noah Oberlander at firstname.lastname@example.org, or the Reed Smith lawyer with whom you normally work.