NLRB Ban on Nondisparagement and Confidentiality Clauses in Severance Agreements and What It Means for Employers

by Rachael C. Haley | November 7, 2023 | Employment & Labor Law

Originally published in IRMI’s Summer 2023 issue of Employment Practices Liability Consultant (EPLiC)

By Rachael Haley and Declan Leonard

Key Takeaways

The National Labor Relations Board (NLRB)’s McLaren Macomb decision was a return to prior, long- standing precedent that employers may not offer nonsupervisory employees severance agreements that require employees to broadly waive their rights under the National Labor Relations Act (NLRA).
The NLRB held that overly broad confidentiality and nondisparagement clauses in severance agreements for nonsupervisory employees are unlawful restrictions on employees’ rights under Section 7 of the NLRA.

Overview of NLRB Ban and Office of General Counsel Guidance

The McLaren Macomb Decision

On February 21, 2023, the NLRB issued its decision in McLaren Macomb,¹ holding that severance agreements with overly broad nondisparagement and confidentiality provisions unlawfully infringe upon employees’ rights under Section 7 of the NLRA in violation of Section 8 of the NLRA.² Section 7 of the NLRA confers broad rights to nonsupervisory employees to engage in “protected, concerted activity” for their “mutual aid and protection,” which generally includes discussing the terms and conditions of their employment with other employees and the public in general.³ In McLaren Macomb, the Board explained that, where a severance agreement unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights, the mere offer of the agreement itself violates Section 8(a)(1) of the Act because it has a reasonable tendency to interfere with or restrain the prospective exercise of those rights by separating the employee and those who remain employed. The Board did not limit this decision to unionized workplaces; thus, severance agreements for both unionized and nonunionized employees are affected by McLaren Macomb.

Nondisparagement Clause

The severance agreement in McLaren Macomb had a nondisparagement clause that prohibited employees from making statements that could disparage or harm the image of the employer; its parent and affiliates; and their officers, directors, employees, agents, and representatives. In response, the Board explained that prohibiting communication among employees expressly violated Section 7 and objected to the nondisparagement clause’s expansive reach (i.e., applied not just to the hospital but also its affiliated entities, officers, directors, employees, agents, etc.) and lack of temporal limitation (i.e., applied “at all times hereafter”).

Confidentiality Clause

The confidentiality clause in McLaren Macomb prohibited employees from disclosing the terms of the agreement to anyone except for a spouse or professional adviser unless compelled by law to do so. In response, the Board reasoned that the language was so broad it would preclude employees “from disclosing even the existence of an unlawful provision contained in the agreement.” Moreover, the ban on communications with coworkers and others, including the employees’ union, had an “impermissible chilling effect” on the employees’ ability to engage in their Section 7 rights.

The Office of General Counsel Guidance

On March 22, 2023, the NLRB Office of General Counsel released a nonbinding guidance memorandum in response to inquiries about the McLaren Macomb decision.⁴ The memo provided much-needed clarification regarding the applicability and scope of the decision.

Does the decision apply to supervisors? Maybe. The NLRA protects supervisors who are retaliated against for refusing to violate the NLRA per their employer’s directives. Thus, an employer cannot retaliate against a supervisor who refuses to offer an unlawfully overbroad severance agreement.
Does the decision apply retroactively to agreements already entered into? Yes. NLRB decisions are presumed to apply retroactively. The General Counsel memo explains that, “while that an unlawful proffer of a severance agreement may be subject to the six-month statute of limitation language under Section 10(b), maintaining and/or enforcing a previously-entered severance agreement with unlawful provisions that restrict the exercise of Section 7 rights continues to be a violation and a charge alleging such beyond the Section 10(b) period would not be time-barred.”
Does the decision outright ban confidentiality clauses? No. Confidentiality clauses that are narrowly tailored to restrict the release of proprietary or trade secret information for a defined period of time based on legitimate business purposes may be lawful. The General Counsel memo further explains that confidentiality clauses with a “chilling effect” on employees assisting others with workplace issues and/or communicating with federal agencies, a union, legal forums, the media, or other third parties are unlawful.
Does the decision outright ban nondisparagement clauses? No. A narrowly tailored, justified nondisparagement provision limited to employee statements about the employer that meet the definition of defamation (i.e., maliciously untrue statements made with knowledge of their falsity or with reckless disregard for their truth or falsity) may be lawful. However, the General Counsel memo reiterated that “[i]t is critical to remember that public statements by employees about the workplace are central to the exercise of employees’ rights under the [NLRA].”
Does the inclusion of an overbroad confidentiality or nondisparagement clause invalidate the entire severance agreement? No. The General Counsel memo explains that decisions are generally made “based solely on the unlawful provisions and [] seek to have those voided out as opposed to the entire agreement, regardless of whether there is a severability clause or not.” However, a savings clause does not necessarily cure overly broad confidentiality and/or nondisparagement provisions, and an employer may still be liable for violating employees’ Section 7 rights if the severance agreement includes mixed or inconsistent messages.
Can an employee or union request an overly broad confidentiality or nondisparagement clause be included in a severance agreement? No. The General Counsel memo states that the NLRB protects public rights that cannot be waived in a manner that prevents the future exercise of those rights, regardless of who first raised the issue. So, it is no defense to say that it was the employee who asked to include these provisions.

How Does the McLaren Macomb Decision Change the Playing Field?

Notably, the NLRB ruling in McLaren Macomb overruled two previous NLRB decisions decided in 2020 under the Trump administration, Baylor Univ. Med. Ctr.⁵ (Baylor) and /GT dlbla /nt’l Game Tech. (/GT).⁶ In Baylor and /GT, the NLRB held that an employer could lawfully offer a severance agreement to employees that required an employee to waive Section 7 rights via confidentiality and nondisparagement clauses, so long as there was no showing of additional unlawful conduct by the employer.

The McLaren Macomb decision expressly eliminates the requirement of additional unlawful conduct by the employer, such that now the mere offering of a severance agreement with such terms is an unfair labor practice because the act of “conditioning receipt of those benefits on acceptance of unlawfully coercive terms” was coercive in and of itself. The focus of the analysis is now the language of the provisions within the severance agreement, not the employer’s intent or additional unlawful conduct.

It is important for employers to remember that the NLRB is a political body whose decisions can swing back and forth with each new administration when deciding whether their agreements need to be updated, given the NLRB McLaren Macomb ruling.

What Does This Mean for Employers?

Employers should review their severance agreements to make sure their nondisparagement and confidentiality clauses are narrowly tailored.
Employers should consider whether broader nondisparagement and confidentiality provisions in severance agreements are necessary for their nonsupervisory employees.
Employers should review their agreements to ensure covenants are not so broad as to prevent an employee from discussing severance or wages, cooperating with the NLRB, or otherwise engaging in protected activity under Section 7 of the NLRA.
Employers should include an express statement in severance agreements that clarifies that nothing in a severance agreement precludes employees from exercising Section 7 rights. While disclaimer language may not necessarily cure overly broad provisions, it will help bolster employers’ arguments that a severance agreement does not violate the NLRA.
Because the McLaren Macomb decision takes effect immediately and applies to existing agreements, employers may want to enter into new superseding agreements with appropriate terms or notify former employees that the overly broad confidentiality and/or nondisparagement provisions in their severance agreements no longer apply. This should only be done after consulting with experienced employment counsel.

Other Developments Regarding Severance Agreements

Although the NLRB is a political body and the McLaren Macomb decision is subject to potential future litigation in which a federal court would review the decision, there has been a recent trend in employment law to prohibit or at least limit the use of nondisparagement and confidentiality clauses in severance agreements, especially in sexual harassment in the wake of the #MeToo movement. This trend is likely to continue, and employers should take heed.

State-Level Limitations on Confidentiality and Nondisparagement Clauses

Many states, including Maine, Oregon, Washington, California, Illinois, New Jersey, and New York, have enacted limitations or outright prohibitions on confidentiality and nondisparagement provisions in severance agreements.⁷ Much of this legislation was passed in the wake of the #MeToo movement to prevent companies from covering up sexual harassment and sex discrimination in the workplace.

Although many states are enacting such laws, their scope and exceptions vary widely, and employers need to be aware of these nuances. This is true if their workforce is geographically spread out, as can be the case with remote employees. These laws can also apply more generally than just in the context of severance agreements.⁸ Moreover, the penalties for noncompliance differ in each state. A comparison of the newly enacted laws in Washington and Maine illustrates these nuances.

Washington’s Silenced No More Act⁹ prohibits employers from requiring or requesting that workers sign confidentiality or nondisparagement agreements that restrict workers’ right to discuss illegal discrimination, harassment, sexual assault, retaliation, wage and hour violations, or any other violations of public policy. Washington’s law also provides for a civil cause of action that lets employees bring a claim for the greater of actual or statutory damages of $10,000, plus reasonable attorney fees and costs.
Maine’s law¹⁰ only bans confidentiality or nondisparagement agreements that make employees stay silent about discrimination or harassment or otherwise restrict an employee’s right to testify or provide evidence to a federal or state agency that enforces employment or discrimination laws, including testifying in federal or state court and reporting illegal conduct to a law enforcement agency. Moreover, Maine’s law does not provide for a private cause of action beyond letting employees file a complaint with the Department of Labor.

Employers should not simply use standard, form contracts for a nationwide workforce anymore. It is important for employers to review state law and tailor their form contract to account for the applicable jurisdiction’s laws about confidentiality and nondisparagement clauses.

Federal-Level Limitations on Confidentiality and Nondisparagement Clauses

On December 7, 2022, President Biden signed the Speak Out Act,¹¹ which renders unenforceable predispute confidentiality and nondisparagement clauses covering sexual assault and sexual harassment disputes. The Speak Out Act does not apply to agreements entered into after a sexual harassment or sexual assault dispute has surfaced and applies to nondisclosure agreements generally, not merely severance agreements. Employers should review their employment agreements, confidentiality agreements, arbitration agreements, and employee handbooks and policies to ensure compliance with the Speak Out Act and applicable state and local laws.

McLaren Macomb, 372 NLRB No. 58 (2023).
Section 8(a)(1) of the NLRA makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of” their Section 7 rights. 29 U.S.C. § 158(a)(1).
29 U.S.C. § 157.
GC Memorandum 23-05, March 22, 2023. It is important to note that an Office of General Counsel memorandum aims to provide policy guidance and is not legally binding or owed deference by courts. See Bray Sheet Metal Co. v. International Ass’n of Sheet Metal, Air, Rail, & Transp. Workers, No. 21-2374 (8th Cir. July 21, 2021).
Baylor Univ. Med. Ctr., 369 NLRB No. 43 (2020).
/GT dlbla /nt’/ Game Tech., 370 NLRB No. 50 (2020).
See, generally, New State Laws Restrict Nondisclosure and Nondisparagement Agreements, Society for Human Resource Management (Sept. 1, 2022).
For example, California’s Silenced No More Act (SB 331) applies to employment, settlement, and severance agreements.
Revised Code of Washington § 49.44.211 (2022).
Nondisclosure Agreements in Employment, 26 M.R.S. § 599-C (2022).
42 U.S.C. § 19401, et seq.

Rachael Haley is an Associate Attorney at Berenzweig Leonard where she works on a range of matters, including government contracts, business litigation, and employment law. She can be reached at rhaley@berenzweiglaw.com or (703) 663-8185.

Declan Leonard is Managing Partner of Berenzweig Leonard and he also heads up the firm’s employment law practice, where he counsels businesses and executives on all areas of employment and labor law. In addition to his many other awards, he has been recognized for the past three years as a Top 100 Lawyer in Virginia by Super Lawyers publication. He can be reached at dleonard@berenzweiglaw.com or (703) 760-0469.