NLRB Order Changes Rules on Severance Agreements

Recently, the National Labor Relations Board (NLRB) issued a ruling that returned to the previously longstanding rule that employer-offered severance agreements cannot be conditioned on certain nondisparagement and confidentiality provisions. The NLRB found that these conditions are in violation of Section 7(a) of the National Labor Relations Act (NLRA). Section 7 of the NLRA provides that an employee has the right to self-organize, join or assist labor organizations and to engage in other activities for the purpose of collective bargaining or other mutual aid or protection. These are generally known as “Section 7 rights,” and apply to most employees of private sector employers, regardless of whether a workplace is unionized or non-unionized.

The NLRB’s decision in McLaren Macomb, 372 NLRB No. 58 (2023), found that the Michigan-based hospital infringed on those Section 7 rights by offering severance agreements that included what appeared to be relatively routine nondisparagement and confidentiality provisions requiring the employees (1) to refrain from making disparaging statements about the employer to other employees or to the general public and (2) to keep the terms of the severance agreement confidential with respect to any third person.

In its analysis, the NLRB discussed the traditionally held rule that an employer proffering a severance agreement that included provisions that could have a reasonable tendency to interfere with Section 7 rights was in violation of the Act. This traditional rule was abrogated in 2020, when the then existing NLRB determined that employers did not violate the NLRA simply by offering severance agreements with the disputed provisions. The 2020 NLRB decisions focused on the circumstances under which an agreement was presented to employees and created a two-part test to reach a determination on when the employer violated the NLRA, including (1) the employer having discharged the employee in violation of the Act or commission of another unfair labor practice against the employee, and (2) the employer “harbored animus” toward the exercise of Section 7 activity.

The NLRB determined to overrule the 2020 decisions following the “circumstances” analysis and returned to prior precedent focusing on the language of the severance agreement and whether that language unlawfully restricts an employee’s rights. Under this precedent, the NLRB scrutinized each of the provisions at issue finding that both the nondisparagement and confidentiality provisions were too broad and had a “clear chilling tendency on the exercise of Section 7 rights by the subject employee.”

Given the return to the strict traditional rule discussed above, employers should carefully consider provisions set forth in any severance agreements to ensure that they are narrowly tailored so as not to implicate any potential Section 7 rights.

For more information on the NLRB’s recent decision and its effect on severance issues, please contact Grayson Shephard at, Alexandria Russell at, or the Labor and Employment group here at RYP.