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Legal Update: NLRB Bans Confidentiality and Non-Disparagement Clauses in Certain Severance Agreements

Posted by Unknown | Mar 15, 2023 | 0 Comments

A recent decision by the National Labor Relations Board may have major implications for employers across the country.  In McLaren Macomb, 372 NLRB No. 58 (2023), the Board considered the case of an employer that had permanently furloughed a number of employees, and offered them severance agreements that contained traditional confidentiality and non-disparagement clauses.

The NLRB has, over the last few decades, grown more and more concerned about these types of clauses in severance releases interfering with the Section 7 rights of non-managerial employees covered by the National Labor Relations Act.  In the early 2000s, the Board issued a series of decisions organized around the principle that confidentiality and non-disparagement clauses that interfere with employee participation in Board investigations of unfair labor practices were illegal.  In 2020, in a previous landmark ruling, the Board held that confidentiality and non-disparagement clauses may be used by employers, to the extent that they do not interfere with or coerce employees with respect to their Section 7 rights to which they would otherwise be entitled.

Against that backdrop, earlier this year, the Board took the general principle that such clauses may not be employed in a way that circumscribes employees' Section 7 rights, and solidified it into a holding of law that the fairly standard confidentiality and non-disparagement clauses at issue in McLaren did in fact violate NLRA § 8(a)(1).  The board held that non-disparagement clauses such as the one at issue are illegal because they would prevent an employee from speaking publicly about workplace conditions that may violate the NLRA.  Moreover, the standard confidentiality clause at issue (with the usual carve-out for immediate family, attorneys, and tax preparers) was also illegal, because it would prevent an employee from even disclosing the existence of a term of the severance agreement that violated the NLRA on its face.  Interestingly, the NLRB was not concerned with any injury-in-fact arising from either of the clauses; it held that the possibility that they may hypothetically curtail protected employment activity under Section 7 makes even proffering an agreement containing such clauses an ipso facto unfair labor practice.

Employers should therefore be aware that it is, for now, illegal to use such clauses in severance agreements with non-managerial employees covered by the NLRA.  Who is a “managerial” employee is determined by a multifactor test outlined in NLRA § 2(11), that takes into account an employee's ability to hire, fire, discipline, or otherwise direct the work of other employees.  Confidentiality and non-disparagement clauses in severance agreements are only illegal to propound to non-managerial employees who are otherwise covered by the NLRA and are entitled to Section 7 rights.

While the  NLRA is not applicable to municipal entities, the State Board of Labor Relations often uses the NLRA as guidance; thus, municipal employers should be guided accordingly. 

We expect that this case will be appealed.  For now, however, all employers should use extreme caution before attempting to employ confidentiality or non-disparagement clauses in severance agreements, and in no case propound any agreement containing such terms to an employee covered by the NLRA and entitled to Section 7 rights.  If in doubt, it is best to consult experienced labor & employment counsel. 

Rose Kallor is a full-service labor & employment firm that can assist you with this issue, or any other legal employment matter.  We can be reached at (860) 361-7999 or at www.rosekallor.com.

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