Labor Board Limits Common Severance Agreement Provisions

The National Labor Relations Board (NLRB) seems to be on a mission to make the life of employers more difficult.  The latest is a ruling prohibiting employers offering employees a severance agreement that prohibits them from making disparaging statements about the employer and from disclosing the terms of the severance agreement itself.  McLaren Macomb, 372 NLRB No. 58 (2/21/23).  The Board majority in its ruling found that broad non-disclosure and non-disparagement provisions in severance agreements violate the Labor Act, reversing prior rulings during the Trump Administration.

The result of the ruling is to render such broad provisions unenforceable, particularly if an employer decides to enforce the severance provision that is considered illegal under the new standards.  The ruling does suggest narrower provisions that can protect employers, and some employers may also consider using disclaimers to improve the legality of the provisions.  It is likely, however, that the existence of such overbroad and illegal provisions would not adversely affect enforceability of the remainder of the severance agreement itself, particularly if there is a severability clause.  

Editor's Note:  It should be noted that this ruling will not apply to managers, supervisors, managerial employees, or others exempt from coverage of the National Labor Relations Act (NLRA).  Such controversial clauses can often be a deterrent to appropriate conduct, even if they are potentially illegal.  It is suggested that the provisions be drafted narrowly and appropriate disclaimers be included, and employers may choose to run a minor risk anyway.

This article is part of our April 2023 Newsletter.

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