On February 21, 2023, the National Labor Relations Board (NLRB or the "Board") issued McLaren Macomb, 372 NLRB 58, holding that severance (separation) agreements with broad non-disparagement and/or confidentiality provisions violate Section 7 rights of employees under the National Labor Relations Act (NLRA). Section 7 guarantees non-supervisory employees "the right to self-organization, to form, join or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other connected activities….” In response to inquiries from workers, employers, labor organizations, and the public, NLRB General Counsel Jennifer Abruzzo on March 22 issued a Memorandum (GC-23-05) addressing the NLRB’s decision and providing guidance to employers relative to severance agreements going forward.
The Memorandum indicates that severance agreements containing overbroad terms violate Section 8(a)(1) of the NLRA because they have a reasonable tendency to interfere with or restrain the exercise of employee rights. Whether or not an employee actually signs a severance agreement containing unlawful provisions is irrelevant, according to the Memorandum, for purposes of finding a violation since the proffer itself inherently coerces employees by conditioning severance benefits on the waiver of statutory rights such as the right to engage in future protected concerted activities and the right to file or assist in the investigation and prosecution of charges with the Board.
Further, the Memorandum advises that the Board’s decision here applies retroactively, but the six-month statute of limitations applicable to most unfair labor practice charges would apply to the proffering of an unlawful agreement; nevertheless, maintaining or enforcing such an agreement would not be time-barred as such would be considered a continuing violation.
The Memorandum makes clear that the Board would not consider an entire severance agreement to be null and void simply because it contains just one overbroad provision. In such situations, the Board would likely seek to have an overbroad non-disparagement and/or confidentiality provision stricken from an agreement rather than attempt to nullify the agreement completely. The General Counsel also added that there may be other provisions often included in severance agreements that could be problematic under the NLRA as interfering with the exercise of Section 7 rights, such as "non-compete clauses; no solicitation clauses; no-poaching clauses; broad liability releases and covenants not to sue that may
go beyond the employer and/or may go beyond employment claims and matters as of the effective date of the agreement; [and] cooperation requirements involving any current or future investigation of proceeding involving the employer…." The Board’s inquiry as to each of these provisions will be whether the clause(s) as written could serve to chill or undermine employees’ rights to engage in conduct and/or activities that are protected under the NLRA, such as discussing terms and conditions of employment, union organizing, taking actions to improve working conditions, etc.
The Memorandum states that "a narrowly-tailored, justified non-disparagement provision that is limited to employee’s statements about the employer that meet the definition of defamation as being maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or fallacy, may be found to be lawful" and thus may be included in exit agreements. In addition, the General Counsel indicates that confidentiality clauses that are "narrowly-tailored to restrict the dissemination of proprietary or trade secret information for a period of time based upon legitimate business justifications" may be considered lawful as well. Thus employers should consider
revisiting these clauses in their "template" severance/separation agreements to revise and modify as appropriate to avoid running afoul of the NLRA.
Keep in mind that the McLaren Macomb decision was issued in late February and is still subject to appeal and possible reversal. Also, importantly, supervisors do not have Section 7 rights and thus are not subject to the limitations of McLaren Macomb. The NLRA defines a "supervisor" 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." Courts generally have ruled that an employee must regularly exercise independent judgment and display one or more of the indicated activities, which must be performed on the employer's behalf, to be exempted from the NLRA’s protections. The Memorandum states that supervisors are nonetheless protected if an employer retaliates against them for objecting to an employer subjecting employees to agreements that violate McLaren Macomb.
Employers are encouraged to consider the specific employee(s) at issue before preparing and offering severance agreements in light of the Board’s recent decision and the guidance now offered by its General Counsel. Calfee's Labor and Employment lawyers are available to assist in preparing appropriate agreements to comply with the evolving state of the law in this area.
Related Calfee First Alert (02.22.2023): NLRB Finds Nondisparagement and Nondisclosure Language in Severance Agreements To Be Unlawful