McLaren marks major shift in severance agreements

In a February 2023 decision, McLaren Maccomb, the National Labor Relations Board offered new guidance about severance agreements and their inclusion of non-disclosure and non-disparagement clauses. McLaren represents a shift in the Board’s severance agreement stance over the past few years, expressly overruling Baylor and International Game Technology, both of which broadly permitted the inclusion of non-disclosure and non-disparagement clauses in severance agreements. This decision is part of a growing tide at the state and federal levels regarding employee rights.

In McLaren Macomb, the NLRB heard the case of 11 union employees who had been placed on permanent furlough. Their severance agreement included confidentiality and non-disclosure clauses. The NLRB considered whether the clauses presented to the employees in McLaren were so broad that they violated the workers' rights under Section 7 of the National Labor Relations Act.

Section 7, which allows most non-managerial, private sector workers' rights to take collective action to improve their working conditions, generally includes the ability to discuss working conditions with fellow employees.

Ultimately, the NLRB determined the agreement offered to the employees was unlawful because“its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights.” The Board added more detail about the nondisparagement provision as they deemed “statements by employees about the workplace are central to the exercise of employee rights under the Act.”

The severance agreements presented in McLaren were so broadly written that, effectively, employees could not talk about anything related to their time at the hospital. In addition, the non-disparagement provision attempted to encompass matters beyond their employer, going so far as to include its parents, affiliate entities, officers, directors, and employees without any time limitation . The Board found such a broad clause violates their Section 7 rights.

In Baylor, the Board focused on the circumstances surrounding the presentation of the agreement to employees rather than the language of a severance agreement itself. It also noted that the agreements were not mandatory and did not affect the terms of employment because they applied to post-employment activities. The Board doubled down on this view in IGT, reinforcing that severance agreements are lawful when they are voluntary, do not affect the pay or benefits established as terms of employment, and are not offered coercively.

The McLaren decision reverses course from Baylor and IGT. Going forward, connecting severance payments to non-disclosure and non-disparagement clauses violates Section 7 rights. The NLRB says the “mere proffer” of these agreements with these conditions tied to the “forfeiture of statutory rights” violates the NLRA. Without a signature, employees can dissuade employees from not using Section 7 rights.

Where do we go from here?

Employers and employees alike should review any agreements with non-disclosure and non-disparagement clauses. The agreements should not limit the ability of employees to make public statements about their workplace; discuss the terms of the agreement and other workplace issues with current and former coworkers, unions, the NLRB, media, and government agencies; and cooperate with the NLRB in investigations or litigation.

For employers and employees alike, this shift may mean significant changes in the severance process for employees, including lowering the amount of  severance payments or not offering any severance. However, it is also important to remember that this decision does not impact managers, supervisors, executives or independent contractors.

If you’re unsure about the structure of a severance agreement you are presenting to a departing employee or one you are presented as part of a severance package, contact the experienced employment lawyers at Berman North. Our skilled attorneys can help you understand your rights and options.