NLRB Concludes that Separation Agreement Provisions Prohibiting Disparagement and Requiring Confidentiality of Agreement Terms Violate Employee Rights

In recent years, government agencies and legislatures have established restrictions on terms of employment separation agreements. For example, the Equal Employment Opportunity Commission (“EEOC”) has long taken the position that employment separation agreements may not limit an individual’s right to communicate with the EEOC. In a series of enforcement actions beginning in 2016, the Securities and Exchange Commission (“SEC”) has taken the position that in the absence of a clear exception, non-disparagement and confidentiality provisions in employee non-disclosure agreements and employment separation agreements with employees of public companies and other employers that are subject to the authority of the SEC can violate an SEC rule prohibiting acts that impede communications with the SEC. More recently, legislatures in various states, including California, Illinois, New York, Oregon and Washington, have enacted statutes that limit in various ways the scope of permissible non-disparagement and confidentiality obligations in employment separation agreements and other agreements with employees.

The Decision in McLaren Macomb

On February 21, 2023, the NLRB issued its decision in McLaren Macomb, which continued the trend of limiting the scope of permissible non-disparagement obligations and restrictions on disclosing terms of employment separation agreements. While McLaren Macomb arose in a unionized setting and is a decision by an agency that most frequently hears cases arising in the collective bargaining context, the decision’s scope is not limited to unionized employers.

Background
McLaren Macomb arose from a layoff at a unionized hospital. The hospital laid off eleven employees in connection with required COVID-19 modifications of its operations. The hospital offered severance pay to the laid off employees, subject to each employee entering into a separation agreement, which included a release of claims, a prohibition on disparaging the hospital or related persons and an obligation not to disclose the agreement’s terms (referred to below as a “confidentiality of agreement provision”). All of the laid off employees signed the agreements.

The union representing the employees then filed an unfair labor practice charge with the NLRB. While the charge raised multiple issues, including whether the hospital had an obligation to bargain with the union regarding the layoff, the Board’s decision in McLaren Macomb was devoted to addressing the hospital’s proposal of separation agreements that included non-disparagement and confidentiality of agreement provisions.

NLRB Decision
The decision in McLaren Macomb focused on the effect of the non-disparagement and confidentiality of agreement provisions on employees’ rights under Section 7 of the NLRA (“Section 7”). Section 7 states in part that “[e]mployees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection….” Under the NLRA, it is an “unfair labor practice” to “interfere with, restrain or coerce employees” in their exercise of rights under Section 7.

In McLaren Macomb, the NLRB observed that Section 7 rights apply to former employees as well as then-current employees. It also stated that Section 7 rights include the right to communicate not only with the NLRB, but also with a “wide range of third parties.” The NLRB concluded that proffering separation agreements with non-disparagement and confidentiality of agreement provisions has a “reasonable tendency to interfere with, restrain and coerce employees in the exercise of their Section 7 rights,” and therefore proffering such agreements constituted an unfair labor practice. In reaching this decision, the Board overruled a contrary decision, which was issued in 2020. The Board emphasized that its concerns with such provisions extended beyond interfering with access to the Board. It stated that such provisions interfered with the Section 7 rights of former employees to communicate with their former co-workers regarding certain matters, such as unfair labor practices or workplace issues covered by the NLRA.

The Board found the non-disparagement provision excessive because it was an unlimited obligation. The Board contrasted the scope of that provision with disparagement that could be prohibited. Based on a Supreme Court decision from 1953, disparagement concerning matters of interest to the public as consumers that is unrelated to employment matters is not protected conduct under the NLRA. In addition, under Board precedent, disparagement related to employment matters is unprotected if it is “maliciously untrue.” The Board faulted the non-disparagement provision of the separation agreements for not being limited to prohibiting unprotected statements. It also criticized the absence of a “temporal limitation” and the application broadly to persons and entities related to the hospital.

The Board found the confidentiality of agreement provision to be unlawful because it would tend both to prevent former employees from providing information to the Board and to prevent them from sharing terms of separation agreements with their former coworkers. The Board commented that restrictions in a separation agreement need to be “narrowly tailored to respect the range of [Section 7] rights.”

Implications for Employers

Scope of Covered Employees
“Employees” for purposes of the NLRA are not limited to those in unionized workplaces. However, managers, supervisors and certain other categories of workers are not “employees” for NLRA purposes. There has been considerable litigation over many years concerning the scope of the exclusion of “supervisors” in particular. An employer that seeks to rely on one of the exclusions of categories of workers to avoid the restrictions of McLaren Macomb to a separation agreement with a departing worker should consult with counsel for assistance in assessing whether an exclusion may apply.

Previously Executed Separation Agreements
It is not clear whether McLaren Macomb will be applied to separation agreements entered into before the decision was issued. If it is, its retroactive effect is limited. Under the NLRA, unfair labor practice charges need to be filed within six months of the alleged unlawful action. Therefore, if an employee does not challenge a separation agreement based on McLaren Macomb within six months of the date when the agreement was proffered, the legal challenge may be time-barred. However, an effort to enforce a non-disparagement or confidentiality of agreement provision deemed unlawful under McLaren Macomb would likely be considered by the Board to be a new unfair labor practice.

Consequences of a Violation
In McLaren Macomb, the Board ordered, among other remedies, the reinstatement of the laid off employees, payment of back pay to them and the posting of a notice to employees stating that it would not offer severance agreements with the non-disparagement or confidentiality of agreement provisions that were found to have been unlawful. However, the reinstatement and back pay remedies appear to have been the result of the hospital having bypassed the union in connection with the layoffs.

In other analogous circumstances, the Board has ordered the rescission of provisions that it found to have violated employees’ Section 7 rights but has not otherwise invalidated the entire agreements at issue. Assuming that the Board follows those previous decisions, its finding that a separation agreement’s non-disparagement and confidentiality of agreement provisions are unlawful should not result in voiding of the entire separation agreement. Instead, the remedy should be the rescission of the non-disparagement and confidentiality of agreement provisions that the Board finds to be overly broad. In addition, the employer would likely be required to post a notice concerning the Board’s findings and its rescission of such provisions.

Continued Use of Non-Disparagement and Confidentiality of Agreement Provisions
Before McLaren Macomb, due to positions taken by agencies such as the EEOC and the SEC, it had become common practice for separation agreements to include provisions making clear that the agreements did not prohibit separated employees from filing charges with or otherwise communicating with government agencies. In addition, depending upon the circumstances, reaching effective agreements with employees in some states required other steps or qualifications for agreements with such terms to be valid.

In light of those restrictions, even before McLaren Macomb, some employers either abandoned or limited their use of non-disparagement and confidentiality of agreement provisions in at least certain circumstances. For instance, when employees are terminated from employment as part of a group layoff with a standardized severance benefit, a provision requiring confidentiality concerning agreement terms is of limited, if any, utility. Also at least in group layoff circumstances, some employers have concluded that there is limited benefit to proposing non-disparagement provisions. Going forward, employers should consider whether the circumstances leading to a separation agreement warrant the inclusion of such provisions.

Drafting Compliant Non-Disparagement and Confidentiality of Agreement Provisions
When an employer determines that non-disparagement and/or confidentiality of agreement provisions should be included in a separation agreement with an employee who is covered by the NLRA, the employer should carefully consider what steps to take to prepare a compliant agreement. The NLRB’s General Counsel has taken the position with respect to certain employment policies that a simple savings clause to the effect that the policy does not prohibit any activities within the scope of an employee’s rights under Section 7 of the NLRA is insufficient. The General Counsel’s position has been that a further explication of those rights is necessary to ensure that an employee’s Section 7 rights are preserved. It can be expected that the Board would take the same position in this context. Therefore, to the extent that an employer seeks to address the challenges imposed by McLaren Macomb by including a savings clause, the employer will need to consider carefully what to state concerning Section 7 rights.

The McLaren Macomb decision provides some guidance regarding non-disparagement provisions by distinguishing between disparagement concerning employment-related matters and disparagement concerning other matters, such as those of interest to the public as consumers, as well as by stating that “maliciously untrue” communications, including concerning employment-related matters, are not protected. Thus, even without using a savings clause, an employer can develop a narrowed non-disparagement provision that should not implicate Section 7 concerns.

Conclusion

The McLaren Macomb decision poses challenges for employers in their use of non-disparagement and confidentiality of agreement provisions in agreements with employees who are covered by the NLRA, regardless of whether the employees are unionized. Goodwin’s employment lawyers are ready to provide assistance to employers in determining what steps to take to help ensure the enforceability of their separation agreements, among other agreements, while protecting their interests in avoiding disparagement and in maintaining confidentiality of agreement provisions.