Rethinking Severance Agreements in the Wake of McLaren Macomb

Following the National Labor Relations Board’s (“the Board”) February opinion in the McLaren Macomb case, employers are strongly encouraged to review any non-disclosure, non-disparagement, and confidentiality clauses in their severance agreements.

Addressing severance agreements between a Michigan hospital and eleven furloughed employees, the Board returned to pre-2020 precedent that agreements including broad prohibitions infringing on former employee’s National Labor Relations Act (“the Act”) Section 7 rights are unlawful on their face. 

In 2020, the Board issued two opinions in Baylor University Medical Center and IGT d/b/a International Game Technology generally holding that the “mere proffer” by an employer of severance agreements containing non-disparagement, non-assistance, and confidentiality provisions, absent outside circumstances that could render the proffers coercive, does not constitute a violation of the Act. In overturning this precedent, the Board found that Baylor “granted employers carte blanche to offer employees severance agreement that include unlawful provisions,” and that such behavior “cannot be correct under the Act.” 

Returning to the pre-2020 standard, the Board evaluated the following provisions: 

• Confidentiality. “The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than a 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-disparagement. “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.

With respect to non-disparagement, the Board found the plain language of the provision “substantially interferes with employees’ Section 7 right” by limiting former employees’ rights to critique employer policy and publicize labor disputes in the absence of “disloyal, reckless or malicious[]” communications. Likewise, the Board found the confidentiality provisions had an “impermissible chilling tendency” because it prohibits employees from “providing information to the Board” and discussing the severance agreements with similarly situated coworkers, or the employee’s Union representatives. 

Ultimately, the Board concluded a severance agreement that conditions benefits on the waiver of rights protected by the Act has a tendency to “interfere with, restrain, or coerce the exercise of those rights” and, absent “narrow tailor[ing],” the mere offer of such agreements are in violation of Section 8(a)(1) of the Act.  

So, what does this mean for employers?

1. Remember that this issue is far from settled as McLaren is subject to appeal and could be vacated by an appeals court, or a future Board decision. 
2. The McLaren decision is broad, and the Board will likely issue future opinions for clarification, particularly to address “narrowly tailor[ing]” confidentiality and non-disparagement provisions so as not to infringe on rights protected by the Act. 
3. While the Act applies to both union and non-union employees, the Act exempts certain individuals from the definition of employees, including independent contractors, executives, supervisors, or managers. 
4. Seek advice from legal counsel as there are many ways to work within the parameters established in McLaren, including updates and revision to your existing severance agreement templates. 

Klein Solomon Mills PLLC has a team of experienced attorneys that are ready to assist you in drafting or reviewing severance agreements that comply with McLaren.