The NLRB Limits Use of Confidentiality Provisions in Severance Agreements

Severance agreements are due for a change as the National Labor Relations Board (NLRB) recently ruled that severance agreements containing broad confidentiality and non-disparagement provisions are largely unlawful and unenforceable as violating Section 7 of the National Labor Relations Act (NLRA).

Previously, employers could offer severance benefits to laid-off employees in exchange for agreements limiting prospective claims. Severance agreements customarily included confidentiality and non-disparagement clauses prohibiting employees from discussing the terms of the agreement itself and making statements detrimental to the interests of the employer.

The NLRB’s recent decision in McLaren Macomb, 372 NLRB No. 58 (2023), reestablished that employers cannot offer severance benefits contingent on employees signing severance agreements containing broad terms that interfere, restrain, or coerce employees from exercising their rights under Section 7 of the NLRA, which includes the right to participate in concerted activities for the purpose of collective bargaining or other mutual aid or protection. Notably, Section 7 protections apply only to non-supervisory employees.

In the McLaren Macomb decision, the NLRB explained that simply offering confidentiality and non-disparagement terms in severance agreements violate the NLRA, as such terms themselves have a reasonable tendency of prohibiting current or former employees from exercising their Section 7 rights. The decision rejects provisions that prevent employees from disclosing information contained in the severance agreement to obtain legal advice or assistance from a union representative, speaking to the media, assisting former coworkers, disclosing information to assist in NLRB investigations, or making any comments that could be negative to the employer.

The NLRB explained, however, that non-disparagement and confidentiality provisions may coexist with Section 7 rights if they are narrowly tailored and not so overly broad that they would directly or incidentally interfere with employee-protected rights. Employers and employees should review their severance agreements to ensure compliance with the NLRB’s latest decision.

By: Samuel Hernandez, Attorney; Irma Alvarez, Summer Law Clerk (2023)