NLRB Reverses Trump-Era Rules on Severance Agreements

On February 21, 2023, the National Labor Relations Board (“NLRB”) issued a new decision restricting the ability of private-sector employers to include non-disparagement and confidentiality provisions within severance agreements.  The decision, McLaren Macomb and Local 40 RN Staff Council, Office and Professional Employees, International Union (OPEIU), AFL–CIO, Case 07–CA–263041, reversed two Trump-era decisions that permitted such provisions except in limited circumstances.

In McLaren Macomb, the NLRB examined severance agreements that were offered to eleven employees that were permanently furloughed in 2020.  The employer operated a hospital in Michigan where it employed approximately 2,300 employees.  As a result of the COVID-19 pandemic, the employer terminated its outpatient services and temporarily furloughed eleven nonessential employees whose duties primarily consisted of greeting patients and visitors of the surgery center.  Approximately three months later, the employer made the furloughs permanent and presented the employees with a severance agreement offering payment in exchange for a waiver and release of claims relating to their employment or termination. 

The severance agreement included confidentiality provision which provided that the employee agreed not to disclose  the terms of the severance agreement to anyone other than to a spouse, professional advisor or legal counsel, or unless compelled to do so by a court or administrative agency.  It also included a non-disclosure provision where the employee agreed “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.”  The agreement further provided that violation of such provisions could result in monetary sanctions or injunctive relief.

The NLRB held that the severance agreement here was unlawful because it had a reasonable tendency to interfere with or restrain rights protected by the National Labor Relations Act (the “Act”) both of the separating employee and those who remain employed.  Specifically, the NLRB stated that the non-disparagement provision would encompass employee statements relating to any labor issue, dispute, or term or condition of employment without limitation.  Likewise, the NLRB held that the confidentiality provision was similarly unlawful because it broadly prohibited the employee from disclosing the terms of the agreement to any third person, thus precluding the employee from filing an unfair labor practice, sharing information with the NLRB in an investigation, or with the union or former coworkers who may be offered such an agreement in the future.

The NLRB noted that the employer’s act of simply offering such an agreement to employees was itself unlawful regardless of whether the employee accepted the severance agreement.  Under the NLRB’s prior precedent, coercive language could not have a reasonable tendency to coerce employees unless it was also offered in unlawful coercive circumstances independent of the language of the agreement.  In overruling such precedent, the NLRB noted that the employer’s motive or the existence of other coercive circumstances is irrelevant in determining whether the language offered to employees is unlawful because it conditioned the receipt of severance benefits on acceptance of those unlawful provisions.

While this decision will generally only impact private sector employers offering severance agreements to rank and file employees in the context of separations of employment (i.e., not managers, executives, or supervisors), those impacts can be significant when such an employer is dealing with complex matters, such as reductions in force, where the confidentiality of such matters may have wider business implications. 

Private-sector employers should consult with their legal counsel to discuss the implications of this decision and any modifications that may be required to severance agreements being offered to employees during a separation of employment.