NLRB Cracks Down on Confidentiality and Non-Disparagement Clauses in Severance Agreements

On February 21, 2023,  the National Labor Relations Board (NLRB) issued a decision in McLaren Macomb regarding the use of confidentiality and non-disparagement provisions in severance agreements for non-supervisory employees. On March 22, 2023, NLRB General Counsel Jennifer Abruzzo issued a non-binding memorandum with additional guidance on the McLaren Macomb decision which also impacts confidentiality clauses and nondisparagement provisions in severance agreements.   Employers and HR professionals should carefully review the terms of their severance agreements to see if any changes are necessary following the recent NLRB developments. 

Are Severance Agreements Legal? 

Yes. Employers are entitled to ask an employee to sign a severance agreement with a release of claims when paying severance pay or other benefits after termination of employment.  The NLRB’s decision has not changed this.  However, the NLRB has made it clear that if an employer asks an employee to sign a severance agreement that requires the employee to waive rights to engage in protected activities under Section 7 of the National Labor Relations Act, it will be an unfair labor practice.  In particular, the NLRB focused on the use of language in nondisparagement and confidentiality clauses in its recent guidance. 

Are Nondisparagement Clauses and Confidentiality Clauses Still Permissible? 

Yes.  Confidentiality and nondisparagement clauses in severance agreements are still lawful if properly drafted.

A nondisparagement clause is a common term in a severance agreement.  It restricts a former employee from speaking negatively about the employer, its line of business, officers, employees, etc. 

A confidentiality clause is also a common term in a severance agreement.  It requires the former employee to keep the terms of the severance agreement confidential.  

However, poorly drafted and overbroad confidentiality and non-disparagement clauses may be considered unlawful if they are found to impede on an employee’s right to engage in protected concerted activities and there is no legitimate business reason for including the clauses in the severance Agreement. 

Examples of lawful confidentiality and nondisparagement include: 

1. Non-disparagement clauses that specifically define what is considered disparaging and do not prohibit employees from discussing terms and conditions of employment.
2. Confidentiality clauses that only cover proprietary or sensitive business information, without preventing employees from discussing their own employment conditions.
3. General release clauses with carve-outs so they do not infringe on employees’ rights to file charges or cooperate with the NLRB or other government agencies.

Examples of “problematic” confidentiality and nondisparagement clauses include: 

1. Overbroad nondisparagement clauses that prevent employees from discussing terms and conditions of employment, even when part of protected concerted activities.
2. Confidentiality clauses that broadly encompass all information about the employer, including information about employment conditions, wages, or other terms of employment.
3. General release clauses that explicitly or implicitly waive employees’ rights to file charges or cooperate with the NLRB or other government agencies.

Key Takeaways

While the NLRB has made it clear that only narrowly tailored confidentiality and nondisparagement clauses are permissible, the severance agreement itself will not necessarily be invalid if it contains overbroad terms.  The NLRB has specified that generally unlawful provisions can be voided without voiding the entire severance agreement.

However, the NLRB developments are important for employers to consider, particularly as it pertains to severance agreements offered to non-supervisory employees.   An express statement, or “carve-out,” in severance agreements relative to employees’ rights to engage in protected, concerted activities under the National Labor Relations Act (the “Act”) has been recommended by the NLRB.  

Although this disclaimer language will not necessarily cure overbroad provisions,  it will help establish that the employer intended to comply with the Act.  Employers have been encouraged by the NLRB to take affirmative actions to ensure the terms of severance agreements are in compliance with these recent developments. 

Why Should I Contact an Employment Attorney? 

The NLRB’s decision directly impacts the terms of severance agreements employees are asked to sign when their employment ends.  If your business, company, or HR team hasn’t had its severance or separation agreement reviewed recently, it is a good time to do so. 

At Hammer Law PLLC, we specialize in helping businesses, HR professionals, and executives navigate the terms of separation agreements.  Contact us on our website if you need help in this area.  As Benjamin Franklin famously said, “An ounce of prevention is worth a pound of cure.” Spend the time now to make sure your agreements are legally compliant and that what you are being asked to sign is fair.