It’s a common practice for severance agreements to prohibit employees from disclosing the terms of the agreement or disparaging the company. But those provisions need to be used more judiciously, following a recent decision from the National Labor Relations Board (NLRB).

Last monht the NLRB issued a decision that bars the use of broad confidentiality and non-disparagement provisions in severance agreements.

The key word is “broad.” The NLRB has ruled it is generally illegal for severance agreements to restrain workers’ rights under the National Labor Relations Act.

Background

The decision in McLaren Macomb involved a Michigan hospital that laid off employees during the COVID-19 pandemic. The employees were offered severance agreements that broadly prevented them from making disparaging comments about the hospital and its affiliates and prevented them from disclosing the terms of their agreement to a third party.

Upon review, the NLRB ruled that the provisions were so broad that they would have precluded the employees from exercising their rights under the National Labor Relations Act. For example, employees would have been prohibited from sharing with their union rep, reporting an unsafe labor practice or assisting in an NLRB investigation.

Entire agreement void

Because the confidentiality and non-disparagement terms were unlawful, the board threw out the hospital’s entire severance agreement.

Arguably, experts say that could be the bigger concern here.

That’s because severance agreements generally require employees to release the company from legal claims related to their employment or termination. Violating NLRB standards in one area of the agreement could open a company to the most essential risk it wished to avoid.

Political shifts

The decision reverses two Trump-era decisions which held such provisions were lawful in most circumstances.

“It’s long been understood by the Board and the courts that employers cannot ask individual employees to choose between receiving benefits and exercising their rights under the National Labor Relations Act.” said NLRB Board Chairwoman Lauren McFerran in a statement. “Today’s decision upholds this important principle and restores longstanding precedent.”

The current board has a Democratic majority; the board’s one Republican member offered a dissenting opinion.

Interpretation and implications

Responding to the decision, many analysts believe that companies can still craft limited confidentiality and non-disparagement clauses. Employers could still require employees to keep the financial terms confidential, for example, or include a clause that prohibits false attacks against the employer. Likewise, analysts are quick to say the new ruling has yet to be tested in court.

Employee rights advocates say the ruling could have direct implications for employers who try to use severance agreements to silence employees who’ve made sexual harassment or assault accusations. The NLRB is likely to consider severance agreements illegal if they’re used to keep unlawful activity under wraps.

Employers should keep in mind that certain employees, including most supervisors, government staff, and independent contractors, are not covered under the NLRB.