Over the last few years, employers throughout the United States have enjoyed some measure of protection from former employees who signed severance agreements.These agreements routinely contained a confidentiality provision that restrains former employees from disclosing the contents of the agreement to third parties other than (1) a spouse; (2) professional advisors for the purposes of obtaining legal counsel or tax advice; or (3) if legally compelled to do so by a court or administrative agency of competent jurisdiction.  These agreements also typically contained a non-disparagement provision that is intended to prevent the former employee from casting the company or its officers, directors, and employees in a negative light.[1]  On February 21, 2023, however, the National Labor Relations Board (“NLRB”) issued a decision in McLaren Macomb (372 NLRB No. 58) which declares these two types of provisions unlawful in severance agreements. According to the NLRB, these provisions run afoul of the rights afforded to both current and former employees under Section 7 of the National Labor Relations Act (“NLRA”). 

In the eyes of the NLRB, a confidentiality provision of the nature outlined above unduly prohibits former employees from engaging in NLRA-protected discussions related to the severance agreement with other employees, union representatives, and NLRB agents. Instead of permitting employers to add language to such provisions to include such disclosure to such individuals for these limited purposes, the NLRB made a sweeping decision to eliminate the intended protections of this type of provision entirely. This is likely due to the NLRB’s previously expressed skepticism over any type of “disclaimer” language, as such language tends not to adequately explain an employees’ rights. However, the NLRB left employers the opportunity to provide “narrowly tailored” confidentiality provisions, though it gave no guidance as to what language would pass muster.

Similarly, the non-disparagement provision seemingly violates employee rights afforded under the NLRA because it theoretically prohibits a former employees’ ability to publicize a labor dispute, assist other employees, or provide future cooperation with Board investigations and litigation. Theoretically, a non-disparagement provision could still be included as long as it prohibits employee communications that are “so disloyal, reckless, or maliciously untrue,” which the NLRB has previously determined as not being protected under the NLRA. But even so, much like the confidentiality provision, its intended protection has all but been eviscerated.

Importantly, this decision primarily affects severance agreements issued to general rank-and-file, non-exempt hourly employees. Specifically excluded from this decision are dozens of categories of professional employees, contracted employees, temporary employees, managers, supervisors, and other higher level employees.  Also of note is that no distinction was made between negotiated severance agreements and employer-drafted agreements, a distinction which is particularly relevant for California employers. Stated differently, it may be an open question as to whether this decision would apply the same way to a severance agreement that is specifically negotiated between an employer and an employee represented by counsel. But that is a challenge for another day. Until then, employers should seek advice from experienced employment counsel to avoid these new pitfalls when preparing employee severance agreements.

[1] California law has already limited the expansiveness of this type of provision by expressly allowing a former employee to disclose actual or perceived acts of discrimination or harassment in the workplace.