The National Labor Relations Board recently ruled that severance agreements with broad confidentiality and non-disparagement provisions may be unlawful under the National Labor Relations Act. These widely-used provisions are a standard part of most severance agreements, and the ruling raises questions about how they can be used in the future. This decision marked a reversal of two prior NLRB decisions that had allowed the use of such provisions.

National Labor Relations Act Background

The NLRA prohibits employers from coercing, restraining, or interfering with employees who exercise the rights granted to them under the Act. Among other protections, the NLRA grants employees the right to engage in “concerted activity,” including the right to discuss their wages or other working conditions with their colleagues or to make public statements about their working conditions, as well as the right to file or participate in the investigation of complaints to the Board. Importantly, the NLRA covers most employers and employees—its reach is not limited to union-represented workplaces or employees.

In McLaren Macomb and Local 40 RN Staff Council, Office and Professional Employees, International Union (OPEIU), AFL–CIO, 372 N.L.R.B. No. 58 (2023), the NLRB found that the employer violated the NLRA’s protections when it offered severance agreements to furloughed workers that contained broadly worded confidentiality and non-disparagement provisions. The provisions at issue in the case stated:

"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, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.”

"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, agents and representatives.”

The NLRB held that these provisions were unlawful because they could be reasonably construed by employees as limiting their right to engage in protected concerted activity, which cannot be waived by contract. For example, employees could interpret these provisions as restricting them from speaking to their former co-workers about ongoing workplace issues, or from participating in an investigatory interview by a Board agent, since doing so might reflect poorly on the image of the company.

Notably, the NLRB determined that since the mere act of offering severance agreements containing these provisions to employees was unlawful under the NLRA, there was no need for the employees to have signed the agreements or for the employer to have attempted to enforce them. While the decision discuses only severance agreements, it is an open question whether the NLRB would apply the same reasoning to cases involving settlement agreements too.

The Bottom Line for Employers

Going forward, employers should be mindful of the issues raised by this decision. However, given the usefulness of confidentiality and non-disparagement provisions to both employers and employees in settling employment-related disputes, as well as the complexities of the NLRA and the McLaren facts and decision, employers should consult with employment counsel and carefully consider their options before making changes to their current severance and settlement agreements.