NLRB overturns non-disclosure rules in employee severance agreements

In February, the National Labor Relations Board (NLRB) ruled that it is illegal for companies to require laid-off workers to sign confidentiality clauses in severance agreements, overturning two Trump-era rulings from the board that held such agreements were not illegal.

The plaintiffs behind the case involved a Michigan Hospital that laid off unionized employees during the pandemic. In McLaren Macomb and Local 40 RN Staff Council, OPEIU, AFL–CIO, 372 N.L.R.B. No. 58 (2023), the board held that the hospital violated the National Labor Relations Act (NLRA) by pushing employees to sign agreements including vaguely-worded confidentiality and non-disparagement clauses to collect severance compensation.

The NLRA asserts employee rights to engage in “concerted activity”, which includes the right to make public statements about working conditions and file complaints with the NLRB. Employers are banned from interfering, influencing, or impeding employees that exercise their rights under the act. “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,” NLRB chairman, Lauren McFerran said in a statement.

With the ruling reversing two previous decisions in 2020, the board, with its new Biden appointees, has continued its pro-worker direction. This comes at a time of new labor movement in America marked by unionization campaigns and strikes across various industries from Starbucks stores to College campuses.

While the 23-page decision only weighs severance agreements, similar reasoning could be applied to settlement agreements too, having implications on contracts seeking to prevent employees from going public about sexual harassment or sexual assault accusations.