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NLRB Reinstates Rule Barring Overly Restrictive Severance Agreements

March 10, 2023 by

On February 21, 2023, an NLRB majority overturned a pair of Trump-era rulings that made it easy for employers to use severance agreements to limit the legally protected union rights of former employees. In their decision in McLaren Macomb, the Board ruled that outgoing employees cannot be pressured into forfeiting their rights under § 7 of the National Labor Relations Act, overturning the 2017 rulings in Baylor Medical Center and IGT d/b/a International Gaming Technology. The NLRB concluded those two cases left employers “entirely free to proffer any [severance] provision, even a facially unlawful one,” without explaining “what legitimate employer interest is served by permitting that step.”


The decision revives an NLRB rule that a severance agreement violates the National Labor Relations Act if the agreement on its face contains “overly restrictive” language that tends to interfere with workers’ organizing rights.


What is “overly restrictive” severance agreement language? The Board in McLaren Macomb addressed two clauses found to be broad enough to interfere with § 7 rights, a confidentiality clause and a non-disparagement clause.


The overbroad confidentiality clause prohibited the employee from disclosing the severance terms 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.” This clause is illegal, the Board noted, because it “precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment.”


The overbroad non-disparagement clause prohibited the employee from making “statements to Employer’s employees or to the general public which could disparage or harm the image of Employer.” This language, the Board noted, is broad enough to “encompass employee conduct regarding any labor issue, dispute, or term and condition of employment.” This language far exceeds the limited scope of “disloyal, reckless or maliciously untrue” statements that employers may legitimately restrict.


The decision does not ban all confidentiality and non-disparagement clauses. But if employers wish to continue including such clauses in severance agreements, the language of the clauses must be carefully tailored to avoid interference with § 7 rights.


The material on this website is provided by Beeson, Tayer & Bodine for informational purposes only and does not constitute legal advice. Readers should consult with their own legal counsel before acting on any of the information presented. Some of the articles are updated periodically, and are marked with the date of the last update. Again, readers should consult with their own legal counsel for the most current information and to obtain professional advice before acting on any of the information presented.