CONFIDENTIALITY AND NON-DISPARAGEMENT TERMS IN SEVERANCE AGREEMENTS

On February 21, 2023, the National Labor Relations Board (“NLRB”) announced a decision in McClaren McComb, 372 NLRB No. 58 (2023), overturning two Trump-era cases concerning confidentiality and non-disparagement clauses in severance agreements. Thereafter on March 21, 2023, the NLRB’s General Counsel Jennifer Abruzzo released a clarifying memorandum in response to inquiries on the McClaren McComb decision and provided further guidance for employers drafting and using severance agreements. 

In McClaren McComb, a Michigan hospital permanently furloughed 11 employees as a result of the COVID-19 pandemic and, in return, offered each of them a “Severance Agreement, Waiver and Release” (the “Agreement”), offering different amounts of severance pay to each employee in return for signing the Agreement. The Agreement included a non-disparagement clause that prohibited employees from making statements that could harm the image of the employer, its parent and affiliates, and their officers, directors, employees, agents, and representatives and a confidentiality clause that prohibited employees from disclosing the terms of the Agreement to anyone other than their spouse or professional advisor. Additionally, the employees faced monetary penalties if they or their professional advisor breached the Agreement. 

An administrative law judge initially ruled that the Agreement was acceptable, but a decision by the full Board found that the Agreement violated Section 8(a)(1) of the National Labor Relations Act (“NLRA”) by interfering with employees’ Section 7 rights to engage in concerted activities, including discussing terms and conditions of employment and joining with other employees to discuss their collective employment with government agencies or the media. Specifically, the NLRB found the provisions were overbroad, stating that any severance agreement prohibiting workers from engaging in concerted activity has “coercive potential” to force the employee to surrender all of their NLRA rights.

General Counsel Abruzzo clarified the NLRB’s position, assuring employers that severance agreements are generally still legal, as long as their provisions are narrowly tailored. Additionally, any severance agreement that contains overbroad provisions is not automatically void; Abruzzo stressed that in those situations, the overall agreement may remain intact, while individual unlawful provisions would be voided. This decision applies retroactively, however, so the NLRB encourages employers to reach out to former employees whose severance agreements contain overbroad confidentiality and non-disparagement provisions and advise them that those provisions are null and void. 

Along with this recent decision, other NLRA restrictions on severance agreements still apply. Severance agreements may not include a waiver of future employment claims arising after the agreement’s date of execution but may settle current or prior employment claims. Agreements also may not require waiver of the right to assist other employees with NLRB investigations or trials and the NLRB strongly discourages employers from including harsh penalties, such as payment of attorneys’ fees, for breach of the agreement. Severance agreements may, however, include narrowly tailored confidentiality clauses that prohibit employees from discussing the financial terms of the agreement and non-defamatory statement clauses that prohibit former employees from making statements that would cross the legal definition of defamation. Employers drafting these provisions should take care to make sure they are not overly broad and are in full compliance with NLRB decisions.