CLIENT ALERT: National Labor Relations Board Decision Addresses Confidentiality and Non-disparagement Provisions in Severance Agreements

The National Labor Relations Board (NLRB) recently issued a decision in a case involving the interaction between confidentiality and Section 7 rights under the National Labor Relations Act (NLRA) of unionized and non-unionized employees. The case involved a rule that prohibited employees from discussing investigations into workplace misconduct or harassment in the context of a severance agreement.  McLaren Macomb, 372 NLRB No. 58 (2023).

The NLRB found that inclusions of non-disparagement and broad confidentiality provisions violated employees’ Section 7 rights to engage in protected concerted activity, which includes discussing workplace conditions with coworkers. The Board also noted that while employers have a legitimate interest in protecting the confidentiality of investigations, such interests must be weighed against employees’ Section 7 rights.

This decision overturned the Board’s 2020 decisions in Baylor University Medical Center and IGT d/b/a International Game Technology which held that an employer could lawfully include in a separation agreement confidentiality and non-disparagement clauses, and clauses prohibiting employees from participating in claims brought by any third party against the employer, in exchange for severance payments. Baylor University Medical Center and IGT d/b/a International Game Technology had reversed long-settled precedent holding that the mere proffer of severance agreements containing broad non-disparagement and confidentiality provisions unlawfully restrains and coerces employees in the exercise of Section 7 rights.   Thus, in McLaren the Board restored the longstanding prohibition of broad non-disparagement and confidentiality provisions and signaled to expected enforcement by the current administration.

McLaren provided limited guidance on how to balance confidentiality interests with employees’ Section 7 rights. The NLRB noted that an employer can only restrict discussion of investigations if it has a legitimate business justification for doing so, and the restriction is narrowly tailored to address that justification. Additionally, the NLRB emphasized that any confidentiality rule should include language clarifying that it does not restrict employees’ rights under the NLRA.

Critically, even the proffer of a severance agreement with language that violates Section 7 rights may be found to be in violation of the NLRA according to the McLaren decision.

Is the decision limited to severance agreements?

No.  While the case involved severance agreements, we expect the Board to extend its reach to separation, settlement, and other agreements alleged to include unlawful provisions.

Does the decision prohibit employers from including claims under the NLRA in their releases?

No.  Properly drafted NLRA release language is still permitted.

Did the Board hold that all confidentiality and non-disparagement clauses violate the NLRA?

No.  McLaren involved specific language the current Board majority deemed overbroad.  The door remains open to the possibility of maintaining lawful confidentiality and non-disparagement provisions if they are carefully drafted and narrowly tailored to mitigate the concerns raised by the Board.

What type of non-disparagement provisions should pass muster?

This issue may be addressed in a future memorandum by the Board’s general counsel, other pending cases, and/or by federal courts of appeal.  The Board in McLaren at least implied that provisions narrowly defining “disparagement” to the type of statements the Supreme Court has found unprotected will not violate the Act.  See e.g., NLRB v. Electrical Workers Local 1229 (Jefferson Standard), 346 U.S. 464, 477 (1953) (“sharp, public, disparaging attacks upon the quality of the company’s product and its business policies, in a manner reasonably calculated to harm the company’s reputation and reduce its income”) and Linn v. United Plant Guard Workers of America, 383 U.S. 53, 60 (1966) (statements that are knowingly false or made with reckless disregard for the truth).

What type of confidentiality provisions should pass muster?

Employers are left with limited options to prevent employees from disclosing the details and conditions of severance and other agreements, even in cases of disputed claims, due to McLaren‘s ruling. However, carefully drafted agreements that include specific provisions prohibiting the disclosure of confidential business information, trade secrets, and proprietary information may still be permissible.

Does the decision apply to agreements with executives, managers, supervisors, or independent contractors?

No.  Board law makes clear these individuals are not “employees” within the meaning of Section 2(3) of the NLRA.

What should you do to protect your interests?

As we have seen and what we expect through further enforcement, each severance agreement is unique in its scope and substance.  While broadly tailored language has been ruled to violate the NLRB, there may be the ability to narrowly tailor language to meet your needs and the law.  Contact the attorneys at TT&H to best guide you through the potential pitfalls.

The team at TT&H will continue to monitor the NLRB and other regulatory decisions that impact our clients’ operations and will provide updates as they become available.

If you have any questions regarding this decision or any other employment law matters, please contact Christopher Scott, Esquire at Thomas, Thomas & Hafer, LLP at cscott@tthlaw.com or at 717.875.1611.