The National Labor Relations Board issued a ruling that casts doubt on confidentiality and non-disparagement agreements that employers routinely provide to terminated employees in return for severance payments. In McLaren Macomb, 372 NLRB No. 58, the NLRB ruled that two fairly typical agreements violated the National Labor Relations Act.
The Ruling. Eleven union employees were terminated at a hospital in Southeast Michigan. They were offered severance payments in return for signing an agreement promising to keep the agreement and its terms confidential from all third parties (excepting spouses and legal or tax professionals) and refraining from making statements that “could disparage or harm the image of the hospital or its management and staff.” The NLRB held that the non-disparagement and confidentiality agreements at issue precluded the employees from discussing with one another and with the public matters that bear on the terms and conditions of their employment, even when they have separated from that employment.
The ruling is largely based on Section 7 of the NLRA, which establishes in part that employees may “engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The ruling also implicates Section 8(a), which forbids employers from interfering with the exercise of section 7 rights. While most of the NLRA is directed to matters concerning unions, these provisions govern virtually all workplaces.
Facts and Perspective. On its face, the ruling renders unenforceable (and perhaps illegal) many agreements that employers and employees routinely enter. And the reasoning under this ruling could also extend to other agreements, most notably settlement agreements associated with actual or threatened lawsuits. While this ruling may seem extreme, below are some important thoughts for employers to keep in mind as they evaluate the use of severance agreements.
- This holding may have perverse results. Confidentiality and non-disparagement are important to many employers, and they will pay terminated employees less for agreements that lack those terms.
- This holding will be appealed, and its fate is uncertain.
- The holding cannot affect the majority of current severance agreements, as the NLRA provides a six-month statute of limitations.
- It is possible to draft non-disparagement clauses that would comply with the ruling. The ruling references a U.S. Supreme Court case that establishes an employer may prohibit “sharp, public, disparaging attack upon the quality of the company’s product and its business policies, in a manner reasonably calculated to harm the company’s reputation and reduce its income.” But the ruling leaves little room for the preservation of confidentiality clauses.
- The NLRA does not apply to supervisory personnel. As such, many severance agreements are unaffected by the ruling.
- If employers offer severance agreements with confidentiality and non-disparagement terms, they must provide language that saves the rest of the agreement if these terms are found unenforceable.
- Careful drafting is important, and disclaimer clauses may help. Some lawyers draft clauses disclaiming any intention to impinge on rights protected by state or federal law. But each agreement implicates different concerns, and there are no cookie cutter templates.
As always, if you have questions concerning this or other employment matters, call Cavitch employment attorneys Max E. Dehn ([email protected]) and Madilyn M. Maruna ([email protected]) or call 216-621-7860.