Fake or Real: Private Employers Can No Longer Offer Severance Agreements With Non-Disclosure Clauses

April 24, 2023


In February 2023, the National Labor Relations Board (“NLRB”) ruled that employers can no longer silence laid-off employees in two specific ways without violating employees’ rights under the National Labor Relations Act (“NRLA”).

What the New Law Says About Severance Agreements

  1. Employers may not include a broadly written non-disparagement clause that prohibits former employees from discussing the terms and conditions of their employment with third parties.
  2. Employers may not include a broadly written confidentiality clause that requires former employees to keep quiet about the terms of their severance agreement.

This new ruling is quite restrictive and the NLRB stated that even the mere offering of severance agreements with provisions that would restrict employees from speaking of the terms of the agreement would be unlawful.

Who Does the Law Effect?

This ruling affects any employer and employee, including union and non-union, covered under the NLRA. The NLRA applies to private sector employers, including health care facilities, and most private sector employees. Supervisors under the NLRA which are defined as: any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment, are not covered by the NLRA and therefore not protected by this ruling.

The NLRA has broad authority and would preempt any state law that would conflict with the new ruling. Many states already restrict an employer’s ability to use non-disclosure and non-disparagement clauses in severance pay agreements. For example, Maine, Oregon, Washington, California, Illinois, and New York all have laws that prohibit employers from requiring workers to sign non-disclosure agreements that restrict a workers’ right to discuss the terms and conditions of their employment. Regardless, in addition to complying with the new NLRB ruling, employers should also make sure that nothing in their severance agreement would violate state law.

Existing Severance Agreements Written Prior to NLRB Ruling

These existing severance agreements may still be valid as the NLRB procedural limitation rules bar workers from bringing charges that fail to relate back to a violation that occurred within the past six months. Meaning that if an employer drafted the severance agreement at a time when the law allowed these provisions that may serve as a potential defense. However, employers should revisit such agreements and determine whether there is a need to revise them to comply with the new ruling.

This decision should not be confused with the recent FTC proposed ban on non-compete agreements. The FTC proposed ban will likely face several legal challenges. The NLRB ruling applies to both federal and state law and is effective immediately.

Contact ByrdAdatto

If you have any questions regarding the new NLRB ruling, or how your medical practice can comply with the new ruling, please contact ByrdAdatto at info@byrdadatto.com.

ByrdAdatto attorney Jay Reyero

Jay D. Reyero

Jay has mastered the art of communication, leaving clients with both an understanding of their business risk and the path to solution.

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