By Greg Care
In February 2023, the National Labor Relations Board (NLRB or Board) made an important ruling in a case called McLaren Macomb about the legality of non-disparagement and confidentiality provisions in severance agreements. Because this ruling affects more than just unionized employees and should apply to all kinds of agreements between employers and employees, its importance should be considered by all private-sector employees.
You might be asking: what is the NLRB and what control does it have over employment matters? Put simply, the NLRB is an independent federal agency that enforces the National Labor Relations Act (NLRA). The NLRA primarily deals with private-sector employees’ rights to form or join unions; engage in protected, concerted activities to address or improve working conditions; or refrain from engaging in these activities. These are broadly known as “Section 7 rights,” taking their name from the part of the law where they are located.
While most of the NLRA is focused on union-related issues (as opposed to all matters of employment), it does protect some important rights even for those who aren’t in a union or seeking to join one because the law covers activities that can be the precursor to unionizing. For example, even non-union employees enjoy the right to communicate with other employees at their workplace about their wages thanks to the NLRA. That is but one aspect of the protected activities co-workers may engage in to improve the terms of their working conditions (here, their pay).
Protected activity is a cornerstone of the Board’s recent decision prohibiting all but the most carefully drafted non-disparagement and confidentiality provisions in severance agreements. The Board decided in McLaren Macomb 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.” The coercion of employees comes into play when severance agreements, like the ones in McLaren Macomb, offer money (or some other valuable benefit) in exchange for the employees giving up Section 7 rights such as concerted, protected activity. So, the Board held that an employer violates the NLRA when it offers a severance agreement containing provisions that would restrict employees’ exercise of NLRA-granted rights, overruling two cases decided by a prior composition of the Board under the Trump Administration.
The severance agreement at issue in the case conditioned receipt of money on the departing employee not making any “statements to [the] Employer’s employees or to the general public which could disparage or harm the image of [the] Employer.” Because “[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the [NLRA]”—including discussions between former co-workers—the right to engage in protected activity is implicated by agreements limiting what departing employees can say about the employer. Coercion not to exercise that right exists when a severance agreement threatens loss of the agreement’s benefits or other penalties if the departing employee disparages the employer. This is especially the case when, as it was here, the agreement is not limited by time or scope and does not define what counts as disparagement. So, the non-disparagement provision was found to violate the NLRA.
The confidentiality provision in question prohibited the departing employee from disclosing the terms of the agreement “to any third person” except a spouse or legal or tax advisor. The Board found that such a broad prohibition would prevent the employee from reporting an unlawful severance agreement provision to the Board in violation of the NLRA’s guarantee that employees be free from coercion in cooperating with the Board. It also ruled that the confidentiality provision would impermissibly prevent the departing employee from discussing the terms of the severance agreement with former co-workers in violation of the NLRA’s protection of assisting co-workers with workplace issues concerning their employer. Conditioning receipt of severance benefits on adherence to these restrictions was found to be unlawfully coercive.
However, these rulings do not mean all non-disparagement and confidentiality provisions are banned. The Board noted that provisions are lawful if “narrowly tailored.” In a footnote, the Board’s decision said it need not define that term for purposes of this case but observed that it had previously 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. Adding to this, the General Counsel of the Board, in a non-binding memorandum, explained that severance agreements can be lawful if they have “a narrowly-tailored, justified, non-disparagement provision that is limited to employee statements about the employer that meet the definition of defamation as being maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity, may be found lawful.” The memorandum also noted that a confidentiality clause could lawfully require non-disclosure of the financial terms of a “a non-Board settlement” (one reached directly between the employer and employee) and restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications.
The NLRB’s General Counsel also noted that McLaren Macomb decision is retroactive in effect. This means that the kind of non-disparagement and confidentiality provisions found unlawful by the McLaren Macomb decision, even if they were agreed to before the decision, are now invalid. The General Counsel noted that an employer would be continuously violating the NLRA by “maintaining and/or enforcing a previously-entered severance agreement with unlawful provisions that restrict the exercise of Section 7 rights,” and suggested that employers would need to inform former employees that overbroad provisions no longer applied.
Taking a step or two further, the General Counsel said that the McLaren Macomb decision extends to “any employer communication,” including pre-employment or offer letters, and that other common severance agreement provisions such as non-compete and non-solicitation clauses may interfere with employees’ rights under the NLRA.
The Board’s decision and the General Counsel’s guidance are important factors to now consider in determining if a previously-signed or newly-offered severance agreement complies with the law. Non-disparagement clauses are a common ingredient in many settlement agreements and a much longer post could be written about the legal debate over their enforceability, including questions about what constitutes a “disparaging” statement. However, in Maryland, for example, courts generally will enforce non-disparagement clauses, with a few notable exceptions such as: settlements of civil rights claims against the government, Overbey v. Mayor of Baltimore, 930 F.3d 215, 226 (4th Cir. 2019); reporting or making claims regarding sexual harassment in the workplace, Md. Code, Labor & Employment § 3-715; and a consumer commenting on a seller, the seller’s employees, or their goods and services, Md. Code, Commercial Law § 14-1325. Further, the U.S. Equal Employment Opportunity Commission, which enforces federal workplace anti-discrimination laws, has opined that agreements purporting to prevent an employee from filing a charge of discrimination or assisting the Commission with an investigation constitute illegal retaliation.
Understanding and navigating this legal landscape can be challenging. While McLaren Macomb is undoubtedly a boon for employees, it still reinforces that the wording and scope of non-disparagement and confidentiality provisions can make all the difference between what is illegal and what is not. It is important to get competent and experienced legal guidance that you can trust. If you or someone you know is searching for answers about this matter, contact us today to see how we may be able to assist.
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