It has become standard practice for many financial service industry firms to include non-disparagement clauses and confidentiality provisions in employee severance agreements. However, the National Labor Relations Board recently issued a decision that dials back its Trump-era rulings that allowed employers to utilize these provisions.
On Feb. 21, the NLRB issued a decision in McLaren Macomb, 372 NLRB No. 58 (2023) in which it found that an employer violated Section 8(a)(1) of the National Labor Relations Act by offering severance agreements to furloughed employees that prohibited them from making statements that could disparage the employer and from disclosing the terms of their agreement. That is, the employer conditioned receipt of severance benefits on the acceptance of such terms.
The ruling, which applies to all employers proffering agreements to non-supervisory employees, held that the severance agreements were unlawful because they would require employees to broadly waive their rights under Section 7 of the National Labor Relations Act. These include the rights to self-organize, bargain collectively and engage in other concerted activities. Moreover, the NLRB noted that “[p]ublic statements by employees about the workplace are central to the exercise of employee rights” under the National Labor Relations Act, and that the broad confidentiality and non-disparagement provisions would “chill” the exercise of these rights.
On March 22, the NLRB’s general counsel issued a memorandum regarding the McLaren Macomb ruling to the NLRB’s field offices. While this memo reflects the general counsel’s opinion, and not necessarily the views of the entire NLRB, it responds to inquiries raised about the impact of McLaren Macomb including whether and how employers could continue to use confidentiality and non-disparagement provisions in their severance agreements.
What’s Allowed and Not Allowed?
The general counsel emphasized that McLaren Macomb does not ban severance agreements with confidentiality and non-disparagement provisions entirely; employers may continue to proffer, maintain and enforce such agreements as long as they do not contain overly broad provisions that “affect the rights of employees to engage with one another to improve their lot as employees.”
The general counsel’s memo recognized that narrowly tailored confidentiality clauses, designed to restrict the disclosure of proprietary or trade secrets for a defined period of time and based on legitimate business justifications, are lawful. Also, employers may continue to use confidentiality clauses that prohibit employees from disclosing the financial terms of a settlement.
As to non-disparagement provisions, the general counsel opined that, under long-standing precedent, narrowly tailored non-disparagement provisions that are “limited to employee statements about the employer that meet the definition of defamation as being maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity” may still be found lawful.
The memo cautioned that so-called “savings clauses” or disclaimers in severance agreements will not necessarily cure overly broad provisions, noting that employers may still be liable for any mixed or inconsistent messages issued to its employees.
Further, the memo noted that when “objectively analyzing whether a provision is facially lawful or not,” the surrounding circumstances simply do not matter; pursuant to McLaren Macomb, “an employer can have no legitimate interest in maintaining a facially unlawful provision in a severance agreement, much less an interest that somehow outweighs the Section 7 rights of employees.” The memo noted that it does not matter whether an employee signs an agreement, as the proffer of the agreement itself constitutes a violation of employees’ statutory rights.
Severance Pay Could Shrink
Going forward, it will be curious to see what kind of financial impact the McLaren Macomb ruling will have on employers and the severance benefits that they provide to departing employees. A potential, though likely unintended consequence, may be that this ruling could lead to employers taking a more uniform (and perhaps less generous) approach to severance. Additionally, the ruling may impact an employer’s ability to resolve potentially sensitive employment disputes with their employees while maintaining the confidentiality to which they have become accustomed.
While this decision will impact all employers, it is likely that the financial services sector will need to come to grips with this ruling immediately, given that layoffs within the industry are happening now. At least for the moment, those financial services industry employers who do not yet have in place clear severance policies should consider implementing them. For those who already have severance policies in place, they should ensure that such policies are adhered to uniformly, absent extenuating circumstances. And, finally, these organizations should take a hard look at their current confidentiality and non-disparagement provisions to see if they can be more narrowly tailored.
Timothy P. Van Dyck is the practice area leader for employment and labor at Boston law firm Bowditch & Dewey. Timothy C. Monahan is a partner in the firm’s business and finance practice. Benjamin J. Hinks is an attorney in the firm’s employment and labor practice.
