NLRB Decision Places Limits on Non-Disparagement Provisions in Severance Agreements

Authored by Katherine M. Flett with assistance from Kristina M. Stevenson, contributor

Non-disparagement clauses have historically been a common element of severance agreements and aim to protect an employer’s name from negative commentary by a former employee to others. The severance agreement is a contract that outlines the compensation and benefits an employee will receive in exchange for the release of any and all employee claims against the employer arising out of the employment relationship.

Confidentiality clauses limiting an employee’s right to disclose the terms of a severance agreement have also been a common element of severance agreements.

A recent National Labor Relations Board (NLRB) decision has placed a warning sign on all employment severance agreements. Retroactively, the NLRB’s decision in McLaren Macomb may invalidate non-disparagement and confidentiality clauses in severance agreements both before and after February 21, 2023. Generally, employers are now prohibited from proffering severance agreements that require non-supervisory employees to broadly waive their rights under Section 7 of the National Labor Relations Act (NLRA) in exchange for severance benefits.

Under the NLRA, Section 7 and Section 8(a)(1) work together to protect an employee’s right to unionize, assist labor organizations, and engage in concerted activities. Employers may not interfere with the Section 7 rights of their employees. To assist in understanding how non-disparagement and confidentiality clauses interfere with Section 7 rights, NLRB General Counsel Jennifer Abruzzo issued a memorandum providing guidance for the applicability of the McLaren Macomb decision.

Five Major Takeaways from the McLaren Macomb Decision

• Overly broad non-disparagement and confidentiality agreements that limit an employee’s right to engage with and assist other employees are unlawful. Additionally, employers may not limit employee access to unions, the NLRB, judicial or legislative forums, the media, or other third parties.
• Severance agreements are not banned altogether. Instead, the confidentiality and non-disparagement provisions included in severance agreements must now be narrowly tailored. For example:
  1. Confidentiality clauses may be lawful if they are narrowly tailored to the dissemination of trade secret information for a period of time justified by legitimate business needs.
  2. Non-disparagement clauses may be lawful if they are narrowly tailored to employee statements about the employer that meet the definition of defamation and are “disloyal, reckless, or maliciously untrue.”
• An employee does not have to sign a severance agreement to render the employer’s conduct unlawful. Proffering a severance agreement with overly broad provisions is sufficient to violate the NLRA.
• Including disclaimer language in a severance agreement is not a catch-all solution. An employer may still be liable if a severance agreement includes provisions that are inconsistent with the exercise of Section 7 rights.
• Only unionized and non-unionized employees that do not hold supervisory roles are impacted. Severance agreements with supervisors are not impacted by this decision unless the supervisor is being terminated because he is engaging in prohibited Section 7 and 8(a)(1) on behalf of the employer.

Provided this change in the landscape of severance agreements, employers should proceed with caution and contact an attorney to make necessary changes to ensure their severance agreements are lawful.

Posted by Attorney Katherine M. Flett and Kristina M. Stevenson.  Flett is a member of the litigation team whose primary focus is on assisting clients in business litigation, employment law, real estate, insurance defense, and bankruptcy matters. Stevenson, law clerk, is a student at Saint Louis University School of Law and a graduate of  Saint Louis University.

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