The National Labor Relations Board (NLRB) recently ruled that confidentiality and non-disparagement clauses in employee severance agreements are unlawful, and thus, unenforceable.  Generally, employers include confidentiality and non-disparagement provisions in their severance agreements to ensure a departing employee does not disclose the terms or the fact of the agreement or disparage the employer in the future.  For most employers, these provisions are integral parts of the reason for the severance agreement. That is why this decision is so troubling.

This presents a complete change from what the NLRB has held under the most recent Republican administration which permitted those clauses so long as the offering did not infringe on the separating employee’s right to exercise his or her rights.

Notably, the NLRA protects the rights of private sector employees to join together to improve their wages and working conditions.  This means that nearly all employers, even those without union labor, are governed by this decision; however, certain employers are exempt, e.g., public sector and managerial employees.

For background: in a 2023 case*, a hospital permanently furloughed 11 employees and offered each a severance agreement with relatively standard confidentiality and non-disparagement clauses.  The NLRB’s decision held that that the confidentiality and non-disparagement provisions unlawfully violated an employee’s rights under Section 7 of the National Labor Relations Act (NLRA).  Section 7 protects the employee’s right to engage in protected concerted activity. The NLRB found that the included provisions were too broad, and thus, could potentially limit the employee’s right to discuss wages, hours, or other terms and conditions of employment.  

While the NLRB’s recent ruling may seem extreme, remember that NLRB decisions typically swing fairly wildly based on its political composition.  This decision only applies prospectively and is likely to fail judicial scrutiny, if tested.  That said, based upon this decision, employers must now determine their comfort level with risk when it comes to what to include in a severance agreement.  Some employers may choose to draft future agreements with these provisions included, waiting to see what happens when (or if) they are tested; others may include certain disclaimers hoping to bring them some protections; and, still others may scrap confidentiality and non-disparagement provisions all together.  

At Ward Damon, we specialize in helping employers navigate requirements and considerations of state and federal employment laws, including planning for uncertainty. 

No matter how employers choose to proceed, it is imperative that they take time now to review their current severance agreement templates, and coordinate with labor and employment counsel to determine how best to move forward.

To learn more and how this might impact your business, please email Bari Goldstein, partner, at bgoldstein@warddamon.com, or Phil Werner, associate, at pwerner@warddamon.com, both members of Ward Damon’s Labor and Employment Practice Group.

* McLaren Macomb and Local 40 RN Staff Counsel, Office and Professional Employees, International Union (OPEIU), AFL-CIO, Case No.: 07-CA-263041.