Your Company’s Current Severance Agreement for Non-supervisory Employees Might Be Illegal – What To Do Next.

If your company, like many, includes “standard” confidentiality and non-disparagement provisions in its employee severance agreements, those agreements may contravene a recent NLRB decision, McLaren Macomb. In that matter, the NLRB considered the validity of severance agreements offered to 11 employees who were furloughed where such severance was conditioned on them agreeing to the following, seemingly innocuous, confidentiality and non-disclosure provisions:

Confidentiality Agreement. The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse . . . professional advisors . . . or unless legally compelled to do so . . . .

Non-Disclosure. At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee’s employment. At all times hereafter, the Employee agrees 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, agent and representatives.

Prior to McLaren Macomb, such provisions had been held permissible so long as there were no other circumstances indicting that they were the product of unlawful coercion. McLaren Macomb expressly overruled that prior precedent, however, and held that:

Examining the language of the severance agreement here, we conclude that the nondisparagement and confidentiality provisions interfere with, restrain, or coerce employees’ exercise of Section 7 rights. Because the agreement conditioned the receipt of severance benefits on the employees’ acceptance of those unlawful provisions, we find that the Respondent’s proffer of the agreement to employees violated Section 8(a)(1) of the [NLRA].

The Board held that the confidentiality provision’s prohibition against disclosure of the terms of the agreement “to any third person” impermissibly limited the employees “from disclosing even the existence of an unlawful provision contained in the agreement.” In the Board’s opinion, the confidentiality provision had a “chilling tendency” on an employee’s rights under Section 7 of the NLRA “because it bars the subject employee from providing information to the Board concerning the [Employer’s] unlawful interference with other employees’ statutory rights.” Additionally, the Board found that the confidentiality provision improperly precluded the employees from discussing the severance agreement with people who remained employed by the company.

As to the non-disparagement provision, the Board reasoned that prohibiting an employee from making “statements to [the] Employer’s employees or to the general public which could disparage or harm the image of [the] Employer,” would bar the employee from “any statement asserting that the [Employer] had violated the Act,” and making public statements about an employee’s workplace is central to their rights thereunder. The Board went on to tautologically rule that a non-disparagement provision could be valid, but only so long as it prohibited critiques of the company that were so “disloyal, reckless or maliciously untrue as to lose the Act’s protection.”

Finally, it is important to note that while McLaren Macomb applies to union and non-union employees, a slight silver lining is that it is inapplicable to supervisory or management-level employees.

So, what should in-house counsel do in light of McLaren Macomb?

  • Specifically carve out from your confidentiality provision exceptions so that the employee can disclose (i) the terms of the severance agreement to employees and former employees of the company, and (ii) unlawful provisions of the severance agreement to the NLRB and/or any similar state agency.
  • Limit your non-disparagement clause to statements made by the employee that do not further any legitimate business or personal purpose and/or that the employee does not reasonably believe to be true.
  • Disclaim any intent to restrict the employee’s rights under Section 7 of the NLRA and append to the agreement Section 7.
  • Include a severability clause to protect the rest of the agreement, should the non-disparagement and confidentiality clauses be found unlawful.

While it is not yet clear whether the application of McLaren Macomb will be retroactive, the NLRA does have a short, six-month statute of limitations. Thus, making changes to your severance agreement today will lessen your risk starting six months from now.

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