February 23, 2023
By: Alexandra (Sasha) Chepov and Oyvind Wistrom
The National Labor Relations Board (NLRB) issued a landmark decision on Tuesday affecting the validity of various provisions typically found in employee severance agreements. The NLRB in McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023) ruled that an employer violates Section 8(a)(1) of the National Labor Relations Act (NLRA) if a severance agreement contains a non-disparagement or confidentiality clause that restricts an employee’s ability to exercise their rights under the NLRA. The NLRB’s decision in McLaren Macomb not only restricts that which an employer can include or offer an employee in future severance agreements, but calls into question the validity of past agreements.
Prior to the NLRB’s decision in McLaren Macomb, severance agreements containing non-disparagement and/or confidentiality provisions were generally deemed lawful under the NLRA so long as the employer did not commit a separate Unfair Labor Practice (ULP) by discriminating against their employees by implementing such an agreement against the backdrop of union organizing or other protected activity. However, in McLaren Macomb, the NLRB abandoned this practice and revived an old standard by which severance agreements will be assessed going forward.
After an employer offered its permanently furloughed employees severance agreements that contained a non-disparagement and confidentiality clauses, eleven bargaining unit employees filed ULP charges on the basis that these clauses violated the NLRA. Notably, the non-disparagement clause at issue prohibited these employees from making statements that could disparage or harm the image of the company, its parent, affiliated entities and their officers, directors, agents, and representatives. Further, the severance agreement prohibited these employees from disclosing the terms of the agreement to any third person.
In deciding the issue, the NLRB held that the standard non-disparagement and confidentiality clauses in the severance agreements were unlawful due to the broad scope of the provisions and the effect that the provisions had on the employees’ ability to exercise their rights under the NLRA. Specifically, the NLRB held that such clauses tend to chill the exercise of an employee’s Section 7 rights to collectively band together in an effort to improve the workplace, and therefore such clauses violated Section 8(a)(1) of the NLRA.
The NLRB’s decision in McLaren Macomb, marks a stark departure from the standard employed by the Trump-Era NLRB, and the decision applies to both the enforcement of fully-executed severance agreements that contain such clauses, and agreements that are merely offered to employees.
Although not explicitly addressed by the NLRB, a well-crafted disclaimer may protect such agreements from running afoul of the NLRB’s decision. However, such disclaimers must unequivocally allow employees to participate in Section 7 activities, file or assist others in filing ULP charges, and to otherwise cooperate with the NLRB’s investigative process. It is possible that this ruling will be followed by a General Counsel Advisory Memo in the coming months offering more concrete examples of lawful severance covenants.
As the NLRB’s holding in McLaren Macomb applies to virtually all private-sector employers, regardless of whether their workplace is unionized, employers should review and revise their severance agreements to ensure they are in compliance with the new standard established by the Board.
If you have questions about this material, please contact Alexandra (Sasha) Chepov by email at firstname.lastname@example.org or Oyvind Wistrom at email@example.com, or any other attorney you have been working with here at Lindner & Marsack, S.C.