Update: NLRB General Counsel Issues Guidance on Confidentiality and Non-Disparagement Provisions in Severance Agreements
As we previously covered, the National Labor Relations Board (Board) ruled in McLaren Macomb, 372 NLRB No. 58, that an employer violates the National Labor Relations Act by including in a severance agreement confidentiality and non-disparagement provisions that have a reasonable tendency to restrain, coerce, or interfere with the employee’s exercise of their Section 7 rights.
The Board further found that, where an agreement unlawfully conditions receipt of severance benefits on the forfeiture of rights under the Act, the mere proffer of the agreement itself violates the Act.
The decision left a myriad of questions unanswered. Are all confidentiality and non-disparagement provisions unenforceable? Does the decision apply to statutory supervisors? Will the Board apply the decision retroactively? If a severance agreement contains an unlawful confidentiality or non-disparagement provision, will the entire agreement be thrown out? Would a “savings clause” or disclaimer “save” overly broad confidentiality and non-disparagement provisions?
In an attempt to answer those questions, and others, the NLRB General Counsel on March 22, 2023 issued a memorandum entitled “Guidance in Response to Inquiries About the McLaren Macomb Decision” (GC Memorandum 23-05). That memorandum purports to provide answers to the questions raised above. Here is what the general counsel had to say on those issues:
Supervisors May Not Be Beyond The Scope of The Decision
Statutory Supervisors normally are not covered by the National Labor Relations Act. Accordingly, it is tempting to jump to the conclusion that the McLaren Macomb decision, therefore, would not apply to them. The GC, however, found that may not always be the case. The GC suggested that supervisors who are proffered overly broad severance agreements fall within the ambit of McLaren Macomb if they can assert that they are being fired in retaliation for refusing to aid the employer’s alleged unfair labor practices or if they are restricted by the severance agreement from participating in a Board proceeding.
The McLaren Macomb Decision Will Apply Retroactively
The GC confirmed in her memorandum that the decision will apply retroactively. She took the position that maintaining a previously executed severance agreement that contains unlawful provisions constitutes a continuing violation. This means that the 6-month statute of limitations for bringing unfair labor practice claims would not bar such a claim. With this in mind, the GC suggested that employers may want to reach out to former employees who were given non-compliant severance agreements to advise them that the overly broad provisions in their severance agreement will not be enforced. The GC gave no assurance, however, that doing so would provide a defense to a claim brought by former employees.
The Entire Severance Agreement Would Not Be Null and Void If It Contained Unlawful Provisions
The GC confirmed that standard Board practice is to void only unlawful provisions in a non-compliant severance agreement as opposed to the entire agreement. She stated that this would be the practice “regardless of whether there is a severability clause or not.” Given that there is no downside in having a severability clause in the agreement, however, we recommend doing so. Typically, such provisions provide that, “should any portion of this agreement be determined by a court or federal agency, such as the National Labor Relations Board, to be unenforceable, the remaining provisions of this agreement shall remain in full force and effect.”
Narrowly-Tailored Confidentiality Provisions May Be Lawful
According to the GC, “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.” Beyond that, the GC takes the position that other confidentiality provisions may have a “chilling effect” on employees’ Section 7 rights and are, accordingly, unlawful.
Some Narrowly- Tailored Non-Disparagement Provisions May Be Lawful
The GC seems to be taking the position that lawful non-disparagement provisions need to be limited to employee statements about the employer that rise to the level of “defamation.” The GC defines defamation as being statements that are, “maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity.” This is a high standard for employers to meet. Importantly, provisions in the severance agreement that prohibit merely disparaging comments, as opposed to defamatory comments, may be unenforceable.
Employers Cannot Rely on "Savings" Clauses
A typical savings clause may state something along the lines of, “nothing in this agreement is intended to prevent the employee from exercising his or her rights under Section 7 of the National Labor Relations Act or to otherwise engage or participate in any National Labor Relations Board proceeding.” According to the GC, a savings clause would, “not necessarily cure overly broad provisions.” Accordingly, it would not be wise for employers to rely on a savings clause as the sole means of curing any defects in the confidentiality and non-disparagement provisions in a severance agreement.
It is important to keep in mind that the GC’s memorandum is not the law. By the GC’s own admission, her memorandum is intended merely to “assist Regions in responding to inquiries from workers, employers, labor organizations, and the public, about implications stemming from…[McLaren Macomb].” Regardless, the memorandum does provide some insight into how the Board may analyze many of the issues raised by the McLaren Macomb decision.
While the GC’s memorandum answered some questions, it raised many more. Keep in mind that the McLaren Macomb decision focused exclusively on confidentiality and non-disparagement provisions in a severance agreement. At the end of the GC’s memorandum, however, she strongly suggested that the reasoning in that decision could apply to other provisions in severance agreements such as: non-compete clauses; no solicitation clauses; no poaching clauses; and broadly worded liability releases and covenants not to sue. The GC threw this in at the very end of her memorandum leaving most of us with the question, “what’s next?’
Despite the uncertainties caused by the GC’s attempt at clarification, there are several, practical steps that an employer can take now.
Review confidentiality and non-disparagement provisions in severance agreements to ensure that they are narrowly-tailored to protect the employer’s business needs. For example, consider limiting non-disparagement provisions to statements made to customers, clients, vendors and business partners. An employer has legitimate business reasons for protecting these relationships and language that is tailored to do so should have minimal, if any, impact on employee’s section 7 rights.
Include a severability clause in severance agreements.
Consider adding a “savings” clause to severance agreements. While the GC offered no formal assurance that doing so would cure otherwise defective severance agreements, she suggested that it could in certain circumstances.
We strongly suggest that employers not reach out to former employees who were given severance agreements that may not comply with the McLaren Macomb decision without first discussing it with their labor and employment attorney. Given the GC’s admission that doing so may not even provide a defense to a potential claim, employers should weigh the risks/rewards on a case-by-case basis.