The National Labor Relations Board (the “Board”) has published a decision concluding that an employer violated the law when it offered a severance agreement to 11 union employees that required them to stay quiet about the company and the terms of their exit. The Board’s decision raises several important questions about severance agreements and could significantly curtail the use of non-disparagement and confidentiality provisions.
The National Labor Relations Act (the “NLRA”) gives certain employees the right to organize, join unions, collectively bargain, and generally communicate with each other and work together to improve their working conditions. In its McLaren Macomb decision published last week, the Board considered the following question: by offering severance agreements to furloughed employees—which imposed non-disparagement and confidentiality obligations—did the employer unlawfully interfere with the employees’ NLRA rights?
The Board specifically reviewed severance language that (1) prevented employees from disclosing the terms of the severance agreement “to any third person” and that (2) required employees “not to make any statements to [the employer’s] employees or to the general public which could disparage or harm the image” of the employer or any of its “affiliated entities.” The Board decided that these provisions violate the NLRA because they have the capacity to restrain employees wishing to exercise their rights under the NLRA.
In reaching this conclusion, the Board explained that the contractual language was problematically broad for several reasons: the confidentiality provision would prevent communications with both former employees and the public; the non-disparagement provision did not define the term “disparagement” or explain what kinds of communication were prohibited; the severance agreement not only prohibited an employee from disparaging the employer but also prohibited disparagement of related entities; and the provisions applied indefinitely (rather than for a limited period of time). The Board further explained that such broadly worded provisions are problematic because they could restrain employees who may otherwise exercise their rights to communicate with former coworkers about working conditions or to assist the Board in NLRA investigations.
Last week’s decision serves as a disruption to previously established norms. The Board previously permitted employers to include confidentiality and non-disparagement provisions in their severance agreements, and these provisions became customary terms in severance agreements. Last week’s decision expressly overturned prior precedent.
The Board’s decision has therefore left employers with several questions moving forward. For example, if broadly worded non-disparagement and confidentiality provisions are a problem, can an employer comply with the NLRA by drafting narrower provisions? What would an appropriately narrow provision look like? What are the consequences of a problematically broad non-disclosure agreement? Will the entire agreement be unenforceable? Will the employer face liability under the NLRA?
Although these questions have not been fully answered, there are some key takeaways that can be drawn from the Board’s decision.
- First, employers should carefully determine whether a separated worker even has rights under the NLRA. The NLRA gives many employees—including non-union employees—the right to communicate and work with their coworkers to achieve better working conditions, but it does not give these rights to all workers, including supervisory employees, management employees, and independent contractors. If a separated worker does not have NLRA rights, then an employer can still freely bind the worker to non-disparagement and non-disclosure obligations.
- Second, when offering a severance agreement to an employee, an employer should consider whether non-disclosure and non-disparagement provisions are absolutely necessary. If it is not vital to include these provisions, an employer could consider foregoing their inclusion in an agreement altogether (so as to avoid any risk of an unfair labor charge).
- Third, if a severance agreement will contain a non-disclosure or a non-disparagement provision, these provisions should be drafted as narrowly as possible. They should be limited in time; they should define important terms; and they should expressly state that an employee still has the right to participate in the Board’s investigations and to freely communicate with former coworkers about workplace conditions.
The Board is expected to release additional guidance on this issue in the coming months, and McCarthy Lebit will continue to review these matters as further information becomes available. To seek counsel from our employment law group, please reach out to request a consultation or call us at 216-696-1422.
