(Source: HR Watchdog presented by CalChamber, by James W. Ward – March 2, 2023) 

On February 21, 2023, the National Labor Relations Board (NLRB) issued an important decision that may affect employers’ use of confidentiality and non-disparagement clauses in severance agreements.

Specifically, in McLaren Macomb (372 NLRB No. 58 2023) the Board ruled that the inclusion of overly broad confidentiality and non-disparagement provisions in employment severance agreements are unlawful under the National Labor Relations Act (NLRA). This applies to most employers, even if not unionized. The mere offer of a severance agreement with these provisions violates the NLRA, regardless of whether the employee entered into the agreement.

In McLaren, an employer offered severance agreements to some employees who were furloughed. The agreements contained the following provisions:

  • Confidentiality Agreement – The employee acknowledges that the terms of this agreement are confidential and agrees not to disclose them to any third person. Third-party exceptions include 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 following the agreement, 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. The employee agrees not to make statements to the employer’s employees or to the general public which could disparage or harm the image of the employer, its parent and affiliated entities, and their officers, directors, employees, agents, and representatives.

The Board took issue with both of these provisions based on their broad language, in particular the restrictions on discussing terms of the agreement with any third persons and making statements to other employees or the general public. Generally, the NLRA protects employees’ rights to engage in certain protected activities, including discussing terms and conditions of employment. The Board found that the provisions above would unlawfully restrict employees’ rights to discuss conditions of employment.

Taking things a step further, the Board also held that simply offering a severance agreement with overly broad confidentiality and non-disparagement provisions is unlawful, regardless of whether the employee has entered into the agreement.

The Board’s most recent decision overturns two 2020 Board decisions issued under the prior administration. These past rules generally permitted employers to include confidentiality and non-disparagement provisions in severance agreements. The change is consistent with recent developments restricting the use of these provision types in agreements at both the state and federal levels.

In California, this is already a tricky area. In recent years, California has passed numerous laws restricting confidentiality and non-disparagement provisions in certain contexts. For example, in 2019, California passed a law restricting the use of non-disclosure provisions in settlement agreements for claims involving allegations of sexual harassment, sexual assault, or discrimination based on sex. In 2022, California expanded on that by preventing the use of non-disclosure provisions in cases of alleged workplace harassment or discrimination based on any characteristic protected under the Fair Employment and Housing Act.

California law also limits the use of non-disclosure provisions in employment severance agreements, stating it is unlawful to include any provision that prohibits the “disclosure of information about unlawful acts in the workplace.” This is defined to include, but is not limited to, harassment, discrimination, or any other conduct that the employee has reasonable cause to believe is unlawful.

The NLRA applies to most employers, even if the workforce isn’t unionized. As such, employers that utilize severance agreements should consult with their legal counsel about the new NLRB decision’s impact on their agreements and future practices.