severance agreement

NLRB Rules that Standard Confidentiality and Non-Disparagement Provisions in Severance Agreements Violate Federal Law

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Authors Peter Donati, Laura Friedel

On February 21, 2023, the National Labor Relations Board (NLRB) issued its decision in McLaren Macomb [1], overturning recent precedent and finding that giving an employee a severance agreement containing commonly used confidentiality or non-disparagement provisions violates the employee’s rights under the National Labor Relations Act (NLRA). This decision means that employers that use severance agreements with non-supervisory employees need to review – and likely revise – their standard forms.

This case arose after a unionized hospital in Michigan furloughed nearly a dozen employees in June 2020, offering each of them a severance agreement in exchange for releasing employment claims. The severance agreements contained broad confidentiality and non-disparagement provisions that prohibited the employees from disclosing the terms of the severance agreement to any third parties and from making statements to other employees or to the general public which could disparage or harm the hospital or those affiliated with it.

The NLRB found that the confidentiality provision would prohibit an employee from discussing the agreement with union representatives and other employees and thus unlawfully restricted the employees’ right to communicate with others about their employment and to assist co-workers and former co-workers with workplace issues.

Similarly, the NLRB found that the non-disparagement provision was impermissible because it would prohibit statements beyond the “disloyal, reckless or maliciously untrue” statements by employees that the Supreme Court has found can be limited by an employer.

Because these provisions “interfere with, restrain or coerce employees’ exercise” of their rights, the NLRB found that giving an employee an agreement containing them violates the NLRA.  The NLRB’s decision in this case overturned recent precedent that looked to the circumstances of the severance agreement, rather than just to its text, to assess permissibility.

Who the Decision Covers – and Doesn’t Cover

The NLRB’s decision impacts all US employers that use severance agreements with non-supervisory employees – whether their workforce is unionized or not. It is important to note, though, that because the NLRA only applies to employees in non-supervisory roles and doesn’t cover supervisors, managers, and executive-level roles, severance agreements with these employees are not affected by the McLaren decision.

What does this mean for Severance Agreements going forward?

In light of the McLaren Macomb decision, it is critical that employers revisit standard separation agreements and adjust confidentiality and non-disparagement language.  However, what exactly employers choose to do in response will depend on their risk tolerance.  Employers wishing to avoid a potential violation altogether should remove confidentiality and non-disparagement provisions from their separation agreements with non-supervisory employees.  However, it remains to be seen whether adding a clear disclaimer that nothing in the agreement limits the employees’ rights under the NLRA (which the agreements in McLaren Macomb did not include) will suffice to avoid a violation.   As such, and until the NLRB speaks further, employers may choose to take some risk and use limited confidentiality and non-disparagement clauses together with a clear disclaimer rather than removing them all together.

Next Steps

The NLRB’s decision is subject to appeal, but, going forward, the NLRB is likely to closely scrutinize any severance agreement that includes confidentiality or non-disparagement provisions. In the wake of this decision, employers should consider taking the following steps:

  • Reviewing and updating form severance agreements that are used with non-supervisory employees.
  • Removing confidentiality and non-disparagement provisions from severance agreements if they restrict employees’ rights under the NLRA or (depending on risk tolerance) carefully tailoring such provisions to be as narrow as possible and adding a clear disclaimer that nothing in the agreement restricts the employee from assisting co-workers or former co-workers with workplace issues, from communicating with others about their employment, or from engaging in other protected concerted activity.
  • Including severability language in the severance agreement so that the remainder of the agreement remains intact even if the confidentiality or non-disparagement provision is deemed impermissible.

If you have questions about the NLRB’s decision, severance agreements, or other employment matters, do not hesitate to reach out to LP’s Employment & Executive Compensation Group.

[1] 372 NLRB No. 58.

SEC Takes Aim at Confidentiality Agreements

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We – and the SEC – think it’s a good time to review your confidentiality agreements.confidentiality-agreement (2)

It’s no secret that the Securities and Exchange Commission (SEC) has had employee confidentiality agreements on its mind for some time now. In the eyes of the SEC, confidentiality agreements, if overly-broad, may prevent or discourage would-be whistleblowers.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended the Securities Exchange Act to include protections and incentives for individuals who come forward with allegations of wrongdoing. Rule 21F-17(a) explicitly prohibits employers from taking action that would “impede” an employee from “communicating directly” with the SEC about a “possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.”

On April 1, 2015, the SEC announced that it had settled its first enforcement action involving an overly-restrictive confidentiality provision under Rule 21F-17(a). The action primarily focused on a confidentiality statement that employees were required to sign in connection with the company’s internal investigation procedures. The statement read:

I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.

The SEC determined that this statement violated the whistleblower protections under Rule 21F-17(a), even though there was no evidence that any employee was prevented or discouraged from communicating with the SEC because of the language. The company agreed to resolve the matter by: (i) paying a penalty; (ii) agreeing to cease and desist from any future violations, (iii) amending the language of the provision; and (iv) agreeing to make reasonable efforts to contact employees who had already signed the agreement to inform them that they did not need to gain permission from anyone to contact governmental agencies. The SEC approved the following amended language:

Nothing in this Confidentiality Statement prohibits me from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. I do not need the prior authorization of the Law Department to make any such reports or disclosures and I am not required to notify the company that I have made such reports or disclosures.

In light of this ruling (and the NLRB’s activity in this area that we discussed in our post yesterday), we recommend that you review all agreements containing confidentiality clauses – including employment agreements, severance agreements, employee handbooks, settlement agreements, nondisclosure agreements and any other similar agreements. If necessary, these clauses should be revised to include an express statement that nothing in the agreement discourages and/or prevents any individual from communicating with any government agency, including the SEC.