On February 21, 2023, the National Labor Relations Board (the Board) issued its decision in McLaren Macomb and Local 40 OPEIU, holding that severance agreements that include non-disparagement or confidentiality provisions that interfere with the exercise of the employee’s right to discuss the terms and conditions of employment with co-workers are unlawful.
After the Board released the McLaren Macomb decision, there were plenty of questions from employers and labor lawyers about the scope of the Board’s ruling. For example, did the ruling only apply to severance agreements, or did it apply more broadly to settlement agreements with these clauses? Will disclaimers that state confidentiality and non-disparagement provisions are not intended to interfere with employees’ rights protected under the National Labor Relations Act (the Act) save them? Can such provisions be narrowly tailored to pass the Board’s scrutiny?
On March 22, 2023, the Board’s General Counsel, Jennifer Abruzzo, issued a memorandum (the memo) outlining the General Counsel’s position on some of these issues and providing much-needed guidance to employers attempting to comply with the Board’s new rule.
Abruzzo explained in the memo that, although the Act generally does not apply to supervisory employees, it is her position that McLaren Macomb would apply to a supervisor who is retaliated against for refusing to proffer a severance agreement with overly broad confidentiality and non-disparagement clauses. Likewise, it is her position that the Act could apply if an employer offers a severance agreement to a supervisory employee in connection with such unlawful conduct as preventing the supervisor from participating in a Board proceeding.
The memo clarified that the McLaren Macomb decision applies retroactively. Thus, severance agreements that were proffered before the decision are unlawful. While the mere proffer of such an agreement more than six months ago would likely be protected by the applicable statute of limitations, it is the General Counsel’s position that maintaining or enforcing a previously entered agreement with unlawful confidentiality and non-disparagement clauses would not be time-barred. She suggested that employers should consider remedying such violations “by contacting employees subject to severance agreements with overly broad provisions and advising them that the provisions are null and void” and that the employers will not seek to enforce the agreements or pursue any breaches of the confidentiality and non-disparagement clauses. Abruzzo noted that doing so may not cure a technical violation, but it could form the basis of a merit dismissal if the charge was related solely to an alleged unlawful proffer.
The General Counsel’s position, outlined in the memo, is that if a severance agreement contains overly broad confidentiality and non-disparagement clauses, the Board will generally seek to void only those clauses and not the entire agreement. She cautioned, however, that whether an entire agreement is voided will depend on the facts of each case.
One key question following the McLaren Macomb decision was whether it applied only to severance agreements, which were at issue in that particular case, or whether it applied more broadly, such as in settlement agreements that resolve litigation out of court. Abruzzo’s position is that “overly broad provisions in any employer communication to employees that tend to interfere with, restrain, or coerce employees’ exercise of Section 7 rights would be unlawful.” Thus, it appears to be the General Counsel’s position that McLaren Macomb applies to all agreements, not just severance agreements.
There was some good news in the memo. The General Counsel expressed her opinion that some confidentiality and non-disparagement clauses could be tailored narrowly enough to not be unlawful. For example, 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 interests” may be permissible. Likewise, Abruzzo noted that “a confidentiality clause only with regard to non-disclosure of the financial terms comports with the Board’s decision [and] would not typically interfere with the exercise of Section 7 rights.” Similarly, a non-disparagement clause that only prohibits an employee from making defamatory, maliciously untrue statements about an employer may be lawful.
The General Counsel gave mixed messages about the value of disclaimers stating that a confidentiality or non-disparagement clause is not intended to interfere with the former employee’s rights protected by Section 7 of the Act to discuss terms and conditions of employment. First, she noted that such language might be useful to resolve ambiguity over vague terms. On the other hand, she offered the opinion that a savings clause or disclaimer language would not necessarily cure overly broad provisions, and employers could still be liable for mixed or inconsistent messages that could impede employees’ exercise of their Section 7 rights. Nevertheless, the memo offered specific rights protected by the Act that should be included in any disclaimer to make it clear what rights an employee still retains. Most of the rights of concern that she identified, however, would only apply to individuals who were still employed and not to former employees covered by a severance agreement, such as the rights to organize or join a union, to strike, and to take photographs in the workplace.
Finally, the memo offered the General Counsel’s opinion on other provisions typically contained in severance-related agreements that she views as “problematic.” The GC identified the following clauses as potentially interfering with employees’ Section 7 rights: non-competition, no poaching, and broad liability releases and promises not to sue that go beyond the employer or beyond employment claims as of the effective date of the agreement. We can expect to see these issues come up in Board decisions in the future.
It is important to note that the memo does not have the force of law. But it is a good indication of how the Board and the individual regions will interpret and enforce McLaren Macomb going forward. Thus, it provides useful guidance for employers who need to draft severance or other employee agreements and do not wish to run afoul of the Board.
Also keep in mind that, because Section 7 of the National Labor Relations Act guarantees “employees” — not just union members — the right to engage in concerted activities for mutual aid or protection, it applies even to employees who are not in a union. If you are contemplating offering severance or settlement agreements to employees or former employees, you should have your legal counsel review the agreement before offering it so that you can ensure it complies with the Board’s new direction in McLaren Macomb and the General Counsel’s interpretation of the scope of that decision.
For assistance or questions about this legal insight, please contact the author or any member of the Steptoe & Johnson Labor & Employment Team.