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  • Writer's picturePaul Peter Nicolai

NLRB Imposes Restrictions on Severance Agreements

Updated: May 19, 2023

The National Labor Relations Board (NLRB) has ruled that employers violate the National Labor Relations Act (NLRA) when they present employees with severance agreements containing confidentiality and non-disparagement provisions that can be construed to waive employees’ rights under the NLRA broadly.

This overturned a precedent that held severance agreements only violated the NLRA when accompanied by other employer violations of the Act, like an employer’s direct dealing with employees during collective bargaining with their union.

Employers, unionized or not, should review employee severance agreements containing confidentiality and non-disparagement provisions for compliance with this new ruling.

In the decision, the NLRB heavily criticized the old standard. It said the old standard wrongly focused on the circumstances under which the agreement was presented to employees rather than the severance agreement itself.

Relying on precedent that held employees may not broadly waive their rights under the NLRA, the new standard says employees violate the NLRA if they offer agreements that restrict employees from engaging in activity protected by the NLRA or from filing unfair labor practice charges with the Board, assisting other employees in doing so, or assisting the Board’s investigative process.

In the Board’s view, severance agreements where employees forfeit NLRA rights in exchange for severance benefits are inherently coercive and potentially unlawful.

The NLRB noted that NLRA rights do not depend on an employment relationship. NLRA rights extend to former employees. For example, employers may not seek severance agreements to prevent employees from speaking with the media, government officials, or other third parties about labor disputes.

While the NLRB decision broadly criticizes non-disparagement, confidentiality, and no-participation clauses in severance agreements, it effectively invites employers to review the contractual language used in severance agreements, with particular scrutiny paid to potentially problematic confidentiality and non-disparagement provisions.

Severance agreement drafters should avoid the impression that an employer’s enforcement of a provision would create a reasonable tendency to interfere with, restrain, or coerce the exercise of an employee’s NLRA rights.

One approach is to ensure that severance agreement provisions are narrowly tailored to respect the range of NLRA rights. In doing so, employers should remember the NLRA only covers employees. Excluded from the definition of employees in the NLRA are supervisors, independent contractors, agricultural laborers, and in-home domestic servants, among others. Excluded workers are not subject to this rule. However, for employees covered by the NLRA, nothing in the decision limits its application to union employees, so its reach likely extends to non-union employers.

Regarding non-disparagement, the clause in the case included prohibiting statements to the employer’s employees or the general public that could disparage or harm the employer's image. This language would need to be narrowed.

Employers may also consider including a disclaimer of restrictions on employees’ rights under the NLRA.

Alternatively, employers may consider limiting the scope of non-disparagement clauses to making communications that are disloyal, reckless, or maliciously untrue after the termination of the employment relationship.

Employers may want to include a time limit on non-disparagement provisions because the NLRB found that the provision violated the NLRA in part because it applied forever.

The same issues apply to confidentiality provisions. Employers may consider narrowing the scope of disclosure limitations an employee is subject to. The NLRB found the confidentiality provision violated the NLRA partly because it applied to any third person.” The Board noted that a reasonable employee could have perceived that broad provision to include NLRB investigators, media outlets, former coworkers, and labor unions.

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