Employers Beware of Including Confidentiality and Non-Disparagement Clauses in Non-Supervisory Severance Agreements

On February 21, 2023, the National Labor Relations Board ruled that confidentiality and non-disparagement clauses in severance agreements with unionized and non-unionized non-supervisory employees are unlawful.  The recent decision, McLaren Macomb, overturned settled precedent that employers could lawfully include confidentiality and non-disparagement clauses in severance agreements with non-supervisory employees, unless the circumstances under which the agreements were offered were coercive.

McLaren Macomb Decision

In McLaren Macomb, a Michigan Hospital permanently furloughed employees who were deemed nonessential during the COVID-19 pandemic.  The furloughed employees were given a “Severance Agreement, Waiver and Release” that included provisions broadly requiring confidentiality about the agreement and prohibiting disparagement of the employer:

6.       Confidentiality Agreement.  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.

7.       Non-Disclosure.  At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee’s employment.  At all times hereafter, the Employee agrees not to make statements to Employer’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.

Although these kinds of provisions were previously respected in severance agreements with non-supervisory employees, the McLaren Macomb Board concluded that the hospital’s confidentiality and non-disparagement provisions interfere with, restrain, or coerce employees’ exercise of their Section 7 rights under the National Labor Relations Act, thereby rendering the provisions unlawful.  Moreover, the Board was concerned about the “chilling effect” that confidentiality and non-disparagement clauses can have on non-supervisory employees.  It stated that an employer violates the Act simply by offering to non-supervisory employees a severance agreement with such clauses; [w]hether the employee accepts the agreement is immaterial.”

Employer Options

Employers may still include confidentiality and non-disparagement clauses in severance agreements with supervisory employees (i.e., supervisors, managers, and independent contractors).  With respect to non-supervisory employees, employers essentially have the following options:

1.    Eliminate confidentiality and non-disparagement provisions in any severance agreements with non-supervisory employees.  This is the most conservative option, but may not be a very satisfying one for employers.

2.    Limit confidentiality provisions to trade secrets, and confine non-disparagement provisions to “disloyal, reckless, or maliciously untrue” statements that employees make about the employer or its products or services.  This option is not yet tested and is based on some comments that the Board included in its decision.  It, too, may not be very satisfying for employers.

3.    Include narrowly-tailored confidentiality and non-disparagement provisions in severance agreements with non-supervisory employees.  For example, as the Board indicated, employers might (a) consider narrowing confidentiality restrictions to certain types of information and (b) include time restrictions in non-disparagement clauses and confine the restriction to just the employer.

4.    Continue to include confidentiality and non-disparagement provisions in severance agreements with non-supervisory employees, but also include a disclaimer making clear that nothing in the agreement prevents such employees from engaging in legally-protected conduct under the Act.

5.    If options 2, 3, and/or 4 are selected, whether alone or in conjunction with one another, include a severability clause in the severance agreement to help an employer avoid having the entire agreement be ruled invalid and preserve the release of the employer.

6.    Continue, at the employer’s risk, to include broad confidentiality and non-disparagement provisions with a sparse disclaimer or no disclaimer or other qualifying language.  Of course, this option is not advisable because it could lead to an unfair labor practice charge against an employer and the invalidation of the release of the employer.

Employers should contact legal counsel to discuss their options in light of the Board’s decision and the particular facts and circumstances of the situations they may be facing.  Furthermore, in its decision, the NLRB did not address the status of severance, employment, confidentiality, non-disparagement, and other agreements that have already been entered into with non-supervisory employees.  Thus, employers with questions about those agreements should also contact legal counsel.

Conclusion

There will undoubtedly be more developments with respect to this area of the law.  The NLRB’s decision will likely be appealed.  Moreover, future NLRB decisions will probably provide guidance to employers about confidentiality and non-disparagement clauses when it comes to non-supervisory employees.  In addition, the Board’s decision will likely apply to other agreements with non-supervisory employees, such as employment, confidentiality, and settlement agreements.  Finally, because of the political make-up of the NLRB, it is quite possible that, if a Republican is elected President, a newly-constituted Board may overrule or limit McLaren Macomb.