Severance agreements are often used by employers to ensure a smooth transition for employees who are leaving the company. These agreements typically include confidentiality and non-disparagement clauses that prohibit the employee from speaking negatively about the company or revealing confidential information. However, a recent decision by the National Labor Relations Board (NLRB) has paved the way for employees to challenge the legality of these clauses.
Background on severance agreements and their use of non-disparagement and confidentiality provisions
Employers often offer severance agreements to departing employees to minimize the risk of litigation and protect their trade secrets and intellectual property. These agreements typically include non-disparagement and confidentiality provisions that prohibit the employee from speaking negatively about the company or revealing confidential information.
These clauses are designed to protect the company’s reputation and trade secrets, but they have been criticized for their chilling effect on employee speech. Employees may be reluctant to speak out about issues of concern if they fear retaliation or if their severance payments are contingent upon their silence.
McLaren decision and its impact on severance agreements
In February 2021, the NLRB issued a decision in the case of Raytheon Technologies Corp. and United Steelworkers, Local 12012, AFL-CIO, stating that conditioning severance agreements on the acceptance of non-disparagement and confidentiality terms is unlawful.
According to the Board, these clauses “interfere with employees’ Section 7 rights to engage in concerted activity for mutual aid or protection by limiting the information about the employer that the employee can share with others.” The Board also found that these clauses have a chilling effect on employees’ willingness to engage in protected activity.
Guidance for Employers on How to Comply with the McLaren Decision
The NLRB has provided guidance for employers on how to comply with the McLaren decision. Employers must review both their current and future severance agreements, as well as any agreements that could be deemed to infringe upon employees’ Section 7 rights.
The board will attempt to strike overbroad, violative provisions of severance agreements instead of invalidating entire agreements. Narrowly tailored confidentiality and non-disparagement provisions may still be considered lawful, but employers should ensure that they do not have a chilling effect on employee speech.
The NLRB is considering the potential extension of the McLaren decision to include severance agreements issued to supervisors under certain circumstances. If a supervisor is also an employee who engages in protected activity, their severance agreement may be subject to the same scrutiny as those agreements of non-supervisory employees.
The McLaren decision has a retroactive effect, so “maintaining and/or enforcing a previously entered severance agreement with unlawful provisions” will be considered a continuous violation and will, therefore, not be time-barred. Employers may be liable for violating the NLRA even if the agreement was signed before the McLaren decision.
Remedies for overbroad or violative provisions in severance agreements
The board will attempt to sever any overbroad or violative provisions in severance agreements instead of invalidating the entire agreement. Employers may be required to revise their severance agreements to remove any offending provisions.
Exceptions for narrowly tailored confidentiality and non-disparagement provisions
Narrowly tailored confidentiality and non-disparagement provisions may still be considered lawful. Employers should ensure that these clauses do not have a chilling effect on employee speech and that they are narrowly tailored to only protect the company’s legitimate business interests.
Discussion of protected activity under the NLRA, including conversations about race and racism:
The NLRB has also clarified that discussions about race and conversations regarding racism could be considered “concerted protected activity” under the NLRA. If an employee’s severance agreement prohibits them from discussing these issues, it may be deemed unlawful.
It is crucially important for employers to consider whether an employee has engaged in any protected activity before taking adverse action against them. This includes all employment laws, including the NLRA. If employers take adverse action based on protected activity, they may be held liable for violating employee rights.
The NLRB’s decision in McLaren carries significant implications for employers who frequently enter into severance agreements containing broad confidentiality and non-disparagement clauses. Employers must review their existing and future agreements in light of this decision and ensure that they do not impede employees’ Section 7 rights. The guidance provided by the Board offers employers a framework to comply with the ruling and minimize their liability.