NLRB purports to limit severance agreements: What this means for employers

On February 21, 2023, the National Labor Relations Board (Board) issued a decision in McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023) (Decision), holding that non-disparagement and confidentiality provisions included in a severance agreement offered to permanently furloughed unionized employees violated Section 8(a)(1) of the National Labor Relations Act (NLRA or the Act). Although the Board’s decision is broadly worded, it does not apply to all severance agreements, and where it applies, employers may still be able to maintain non-disparagement and confidentiality clauses but can consider certain modifications to reduce risk.  

Background on Sections 7 and 8(a)(1) of the NLRA

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 the rights guaranteed in Section 7" of the Act. Section 7 of the NLRA guarantees employees "the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection," as well as the right "to refrain from any or all such activities." 

In holding that the inclusion of non-disparagement and non-disclosure clauses violated an employee’s Section 7 rights, the Decision reversed Board precedent that generally took the position that the inclusion of such clauses did not violate the Act.

What happened in the Macomb Decision?

In Macomb, a hospital furloughed 11 unionized employees, offering them severance agreements. The severance agreements contained broad non-disparagement provisions and non-disclosure provisions of the type commonly included in severance agreements.

Specifically, the agreements contained the following clauses:

6. Confidentiality Agreement. The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them 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 by a court or administrative agency of competent jurisdiction.

7. Non-Disclosure. 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.

Notably, the agreement also provided for penalties against the employees if they breached the non-disparagement and confidentiality terms:

Injunctive Relief. In the event that Employee violates the provisions of paragraphs 6 or 7, the Employer is hereby authorized and shall have the right to seek and obtain injunctive relief in any court of competent jurisdiction. If Employee individually or by his/her attorneys or representative(s) shall violate the provisions of paragraph 6 or 7, Employee shall pay Employer actual damages, and any costs and attorney fees that are occasioned by the violation of these paragraphs.

As related to non-disparagement, the Board indicated that there was no definition of disparagement in the agreement that “cabins that term to its well-established NLRA definition,” namely that “employees’ communications not be so ‘disloyal, reckless or maliciously untrue as to lose the Act’s protection.’” Additionally, the Board took issue with the provision because it did not solely apply to the employer, but also to “parents and affiliated entities and their officers, directors, employees agents and representatives” and also contained “no temporal limitation.” 

Concerning the non-disclosure provision, the Board took issue that such clause applied “to any third person.” It went on to state that this effectively “bars the subject employee from providing information to the Board” and “would also prohibit the subject employee from discussing the terms of the severance agreement with his former coworkers who could find themselves in a similar predicament facing the decision whether to accept a severance agreement.” 

After reviewing these provisions, as well as the damages provisions, the Board determined that their inclusion was an unfair labor practice; specifically, it had a chilling effect on employees that would “interfere with, restrain, or coerce employees’ exercise of Section 7 rights” and therefore “violated Section 8(a)(1) of the NLRA.”

Despite the broad ruling, what are the key implications of the Decision?

First, not all workers have Section 7 rights. Notably, supervisory employees, managerial employees, public sector employees, independent contractors, and some agricultural workers are not covered by these NLRA protections, and thus are outside the scope of this decision. That said, while only unionized employees were at issue in the Decision, non-unionized employees have rights under Section 7 so the Decision could apply equally to non-unionized employees. 

Second, although in issuing its Decision the Board required the hospital to reinstate the employees and provide backpay due to the “unlawful furlough,” this was due to the hospital’s failure to bargain with the union. The remedies set forth concerning the overly broad severance agreements appeared to have been limited to revising the severance agreements to be in line with the decision and posting a notice drafted by the NLRB that states employees’ rights under the Act, and also what affirmative actions the hospital must take. The Board did not expressly require compensatory damages be paid due to the overly broad provisions in the severance agreements.

It is possible that this decision could be challenged in a federal court of appeals.

What should employers consider doing next?

There is no one-size-fits-all approach for responding to the Decision. When entering into a severance agreement, an employer must consider whether the individual has Section 7 rights at all (if they do not, such as if they are a supervisor, then the Decision likely would not apply to them). If they do, the employer must weigh the importance of maintaining confidentiality and/or non-disparagement provisions in a severance agreement against the potential for being found to have committed an unfair labor practice. Notably, due to the potential limitations of the Board’s authority to award consequential damages in matters involving overly broad severance agreements, it is a judgment call whether a given employer should remove these provisions from their template agreements wholesale, consider modifications to mitigate the risk of an unfair labor practice, or to largely maintain these provisions as-is. Some modifications that might reduce risk could include: (i) providing a narrower and clearer definition of disparagement; (ii) expressly stating that the employee retains the right to go to the Board to complain about alleged violations of the Act, notwithstanding the non-disclosure language in the agreement; (iii) limiting or eliminating damages provisions pertaining to non-disparagement or non-disclosure provisions; and (iv) including a disclaimer that the severance agreement is not intended to, nor shall it, infringe upon an employee’s rights under Section 7 of the Act. Although these mitigating factors will help show that an employer did not seek to infringe on Section 7 rights, based upon the current Board composition, we doubt these measures will fully exculpate employers even with revised language. However, as a practical matter, unless a company is being organized or currently has a union, it is doubtful that many non-union employees receiving such a release will seek assistance from the Board.

As always, if there are any questions or you would like to formulate a go-forward strategy in light of the Decision, feel free to contact an author of this post or another Hogan Lovells lawyer with whom you work.



Authored by Kenneth Kirschner, George Ingham, and Zachary Siegel.


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