Labor Board Attacks Confidentiality and Non-Disparagement Provisions in Separation Agreements
- Feb 24, 2023
- Labor Law
- Grant T. Collins
Earlier this week, the National Labor Relations Board (“NLRB” or the “Board”) issued a decision in McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023), finding that confidentiality and non-disparagement clauses in a departing employee’s separation agreement violate Section 8(a)(1) of the National Labor Relations Act (“NLRA” or the “Act”). While the decision involved employees represented by a union, the Board’s decision is not so limited. Indeed, under the Board’s reasoning, any severance offer containing similar language to employees covered by the NLRA would constitute a violation of the Act.
The decision signals that the Board will carefully scrutinize employer policies and separation agreements that purportedly impact employees’ Section 7 rights. That is, employees’ right to discuss the terms and conditions of their employment with their coworkers.
The employer, a hospital in Michigan, employed approximately 2300 employees. In 2019, the union was certified as the bargaining representative for service employees at the hospital. In the middle of the COVID-19 pandemic, and before the parties had bargained a contract, the hospital permanently furloughed 11 bargaining unit employees.
The hospital failed to notify or negotiate with the union over the effects of the decision and, to the exclusion of the union, offered the 11 employees severance agreements that included the following provisions:
The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than 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.
At all times hereafter, 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.
An administrative law judge (“ALJ”) had no problem finding the hospital to have violated Section 8(a)(5) by failing to bargain with the union over the furloughs and engaging in “direct dealing” by offering the severance agreements to employees without involving the union.
Nevertheless, the ALJ concluded that the confidentiality and non-disparagement provisions did not violate Section 8(a)(1) under the NLRB’s decision in Baylor University Medical Center, 369 NLRB No. 43 (2020). The NLRB’s General Counsel appealed the ALJ’s decision to the Board.
The Board Finds that the Confidentiality and Non-Disparagement Clauses Violated Federal Labor Law
After overruling its 2020 decision in Baylor University, the Board held that an employer commits an independent violation of Section 8(a)(1) of the NLRA “when it proffers a severance agreement with provisions that would restrict employees’ exercise of their NLRA rights.” The Board reasoned:
The nondisparagement provision on its face substantially interferes with employees’ Section 7 rights. Public statements by employees about the workplace are central to the exercise of employee rights under the Act. Yet the broad provision at issue here prohibits the employee from making any “statements to [the] Employer’s employees or to the general public which could disparage or harm the image of [the] Employer”—including, it would seem, any statement asserting that the Respondent had violated the Act (as by, for example, proffering a settlement agreement with unlawful provisions). . . .
Further, the ban expansively applies to statements not only toward the Respondent but also to “its parents and affiliated entities and their officers, directors, employees, agents and representatives.” The provision further has no temporal limitation but applies “[a]t all times hereafter.” The end result is a sweepingly broad bar that has a clear chilling tendency on the exercise of Section 7 rights by the subject employee. This chilling tendency extends to efforts to assist fellow employees, which would include future cooperation with the Board’s investigation and litigation of unfair labor practices with regard to any matter arising under the NLRA at any time in the future, for fear of violating the severance agreement’s general proscription against disparagement and incurring its very significant sanctions. The same chilling tendency would extend to efforts by furloughed employees to raise or assist complaints about the Respondent with their former coworkers, the Union, the Board, any other government agency, the media, or almost anyone else. In sum, it places a broad restriction on employee protected Section 7 conduct.
As to the confidentiality provision, the Board similarly concluded that it violated Section 8(a)(1):
The provision broadly prohibits the subject employee from disclosing the terms of the agreement “to any third person.” The employee is thus precluded from disclosing even the existence of an unlawful provision contained in the agreement. This proscription would reasonably tend to coerce the employee from filing an unfair labor practice charge or assisting a Board investigation into the Respondent’s use of the severance agreement, including the nondisparagement provision. Such a broad surrender of Section 7 rights contravenes established public policy that all persons with knowledge of unfair labor practices should be free from coercion in cooperating with the Board. The confidentiality provision has an impermissible chilling tendency on the Section 7 rights of all employees because it bars the subject employee from providing information to the Board concerning the Respondent’s unlawful interference with other employees’ statutory rights.
The confidentiality provision would also prohibit the subject employee from discussing the terms of the severance agreement with his former coworkers who could find themselves in a similar predicament facing the decision whether to accept a severance agreement. In this manner, the confidentiality provision impairs the rights of the subject employee’s former coworkers to call upon him for support in comparable circumstances. Additionally encompassed by the confidentiality provision is discussion with the Union concerning the terms of the agreement, or such discussion with a union representing employees where the subject employee may gain subsequent employment, or alternatively seek to participate in organizing, or discussion with future co-workers. A severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment. Conditioning the benefits under a severance agreement on the forfeiture of statutory rights plainly has a reasonable tendency to interfere with, restrain, or coerce the exercise of those rights. unless it is narrowly tailored to respect the range of those rights.
Because the Board concluded that these provisions violated the NLRA, the Board ordered the hospital to “cease and desist” from: (1) “[p]resenting the permanently furloughed employees with a severance agreement prohibiting them from making ‘statements to [the Respondent’s] employees or to the general public which could disparage or harm the image of Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives’” and (2) “[p]resenting the permanently furloughed employees with a severance agreement prohibiting them from disclosing the terms of the severance agreement ‘to any third person, other than 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.’”
While the Board’s decision in McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023) involved a union employer unlawfully offering severance to union employees, the Board’s analysis of the confidentiality and non-disparagement provisions in the agreements is equally applicable to severance and separation agreements in the non-union context.
Importantly, though, the NLRA does not cover all workers. Supervisor and managerial employees, as well as true independent contractors, are not covered by the NLRA, so it is unlikely that the decision would apply to separation agreements involving these workers.
As far as next steps, removing confidentiality and non-disparagement provisions from future severance agreements is not necessarily the answer. Instead, employers will need to review and potentially narrow the restrictions to avoid running afoul of the NLRA. If the employer has specific concerns regarding trade secrets or other specific confidential information, the agreements should be revised to expressly address the concerns. Other options include disclaimers and narrowing agreements to avoid running afoul of the NLRA.
Finally, the NLRB’s decision will likely be appealed to the federal appeals court (and perhaps even the Supreme Court), so we have not heard the last on this issue. Still, when offering an employee severance in the future, employers will still need to consider the NLRB’s new standard.
We will continue to monitor this situation as it develops.