In late February, the National Labor Relations Board (NLRB or Board) issued a ruling in McLaren Macomb, which significantly impacts the legality of non-disparagement and confidentiality provisions that are commonly found in employment severance agreements. In the case, the Board found that an employer violated the National Labor Relations Act (NLRA or Act) by offering severance agreements that contained “overly broad” non-disparagement and confidentiality provisions that deterred employees from exercising their rights under the Act. Following the decision, the NLRB General Counsel issued Memorandum GC 23-05, which provided further insight on what provisions in severance agreements may be permissible and impermissible under the Act.
In light of the NLRB’s decision and memo, employers should review their severance agreements with legal counsel to ensure they do not deter employees from exercising their rights under the Act.
McLaren Macomb Decision
The McLaren Macomb case centered around severance agreements that were offered to a group of unionized hospital workers. The severance agreement included a non-disparagement clause that prohibited employees from making statements that could disparage or harm the image of their employer, its parent and affiliated entities and their officers, directors, employees, agents, and representatives. The agreement also included a confidentiality provision that prohibited employees from disclosing the terms of the agreement to any 3rd party except a spouse or professional advisor for legal counsel or tax advice. These provisions were not time limited and, if violated, subjected employees to potential monetary or injunctive sanctions.
The NLRB found that the agreements contained “overly broad” confidentiality and non-disparagement clauses that tended to interfere with, restrain, or coerce employees’ exercise of their rights under Section 7 of the Act, which provides employees with the right to communicate with 3rd parties in circumstances related to an ongoing labor dispute. Since the agreement prohibited employees from disclosing information related to the agreement or from making statements that harmed the employer, the NLRB found that the agreements attempted to deter employees from exercising their Section 7 rights because employees may have felt they were required to give up these rights to receive the benefits provided by the agreement.
Importantly, the NLRB found that the employer violated the Act by simply offering employees a severance agreement with these unlawful provisions.
NLRB Guidance on Severance Agreements
In March, the NLRB General Counsel issued Memorandum GC 23-05, “Guidance in Response to Inquiries about the McLaren Macomb Decision,” which provided further guidance on the scope of the decision and its impact on severance agreements. Though the memo is not legally binding and is directed at the Board’s regional offices, it should provide employers with guardrails on what can and cannot be included in severance agreements.
Below are some key takeaways from the memo:
- Severance agreements are not banned; lawful severance agreements may continue to be proffered, maintained, and enforced if they do not have overly broad provisions that affect the rights of employees to engage with one another to improve their lot as employees. This includes the rights of employees to extend those efforts to other channels such as accessing the Board, their union, judicial or administrative or legislative forums, the media, or other 3rd parties.
- The offer of an unlawful severance agreement in and of itself violates the Act; it does not matter whether the employee signs the agreement.
- The McLaren Macomb decision is effective retroactively before the February 21, 2023 decision. Therefore, employers who maintain or enforce unlawful severance agreements entered into before that date could be found in violation of the Act. The memo states that employers should consider contacting employees who have entered into such agreements to notify them that any unlawful overly broad provisions are null and void and they will not seek to enforce them or pursue any penalties for breaches of these provisions.
- Confidentiality clauses that are narrowly tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications may be considered lawful. However, confidentiality provisions are unlawful if they preclude employees from assisting others about workplace issues and from communicating with the Agency, a union, legal forums, the media, or other 3rd parties.
- Non-disparagement clauses that are narrowly tailored and limited to employee statements that meet the definition of defamation as being maliciously untrue (e.g., made without knowledge of their falsity or with reckless disregard for their truth or falsity) may be found lawful.
- Other severance agreement provisions that may interfere with employees’ exercise of Section 7 rights include non-compete clauses, no solicitation clauses, no poaching clauses, broad liability releases and covenants not to sue that go beyond employment claims and matters as of the effective date of the agreement, and provisions prohibiting cooperation in investigations.
- Other employer communications, such as pre-employment or offer letters, that tend to interfere with, restrain, or coerce the exercise of Section 7 rights would also be unlawful.
The NLRB McLaren Macomb decision and memo impacts most private employers in the U.S., as most employers are subject to the NLRA, whether or not their employees are unionized. As such, employers should review any template severance agreements they use to ensure they do not contain overly broad non-disparagement, confidentiality, or other provisions that would interfere with an employee’s rights under the Act, including but not limited to, the rights of employees to engage with one another to improve their lot as employees. Employers should conduct this review prior to offering any severance agreement.
In addition, if an employer has provided a severance agreement with overly broad non-disparagement or confidentiality provisions prior to February 21, 2023, they may want to consider reaching out to those employees to notify them that these provisions are voided and will not be enforced.
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