On March 22, 2023, NLRB General Counsel Jennifer Abruzzo issued Memorandum GC 23-05 (the “Memorandum”) offering guidance to Regional Directors for interpreting the National Labor Relations Board’s (the “NLRB” and the “Board”) recent decision in McLaren Macomb. Overruling prior Board precedent, McLaren Macomb held that employers offering severance agreements containing broad non-disparagement and confidentiality provisions may violate Section 7 of the National Labor Relations Act (the “NLRA” or “Act”). According to the NLRB General Counsel Abruzzo, McLaren Macomb marks a return “to longstanding precedent” and is in alignment with prior Board decisions that analyzed the language of the severance agreements to determine if they had a “reasonable tendency to interfere with, restrain, or coerce employees’ exercise of their Section 7 rights.” The Memorandum, which is not law but rather interpretative guidance, clearly demonstrates the NLRB’s efforts to broaden its focus on non-union private sector workplaces, which are covered by the NLRA but typically less preoccupied with Board law.
Section 7 of the NLRA provides rights and protections to most private sector employees, including the right to self-organize, the right to join or assist labor unions, the right to cooperate with NLRB investigations, and the right to engage in protected activities such as criticizing their employer’s policies, discussing severance, wages, and other terms and benefits of their employment with other employees or former employees for the purpose of collective bargaining or other mutual benefits for employees. These protections exist for most private sector employees, with the exceptions of management, supervisors, government employees, agricultural laborers, and independent contractors, who generally are excluded from the Act’s coverage.
The Memorandum outlines the General Counsel’s interpretation of, and answers questions raised by McLaren Macomb.
- Narrowly Tailored Non-Disparagement and Confidentiality Clauses Are Still Allowed Under Certain Circumstances
While the Memorandum expressly states that severance agreements are not banned, they must not contain overly broad language that would effectually limit an employee’s rights to engage with their coworkers or former coworkers for the purpose of improving their “lot as employees.”
Confidentiality clauses that only protect an organization’s proprietary information and trade secrets may be considered lawful by the NLRB, as well as non-disparagement clauses that are limited to maliciously untrue statements made with falsity or reckless disregard for their truth or facility—typically a defamatory communication. Provisions that go beyond these narrow limits may be considered a violation of the NLRA.
- Merely Providing An Overbroad Severance Agreement Violates the NLRA
The Memorandum reiterates the Board’s position in McLaren Macomb that merely offering a severance agreement requiring forfeiture of statutory rights violates Section 8(a)(1) of the Act “because it has a reasonable tendency to interfere with or restrain the prospective exercise of those rights – both by the separating employee and those who remain employed.” A severance agreement found to be invalid on its face will violate the NLRA, whether or not the employer attempts to enforce the overbroad provisions.
- Savings Clauses May Not Fully Insulate Employers
The Memorandum notes that while savings clauses may help to resolve potential ambiguity over vague terms, they will not necessarily cure overbroad provisions. The General Counsel Memorandum cites to prior guidance emphasizing the importance of identifying the statutory rights at issue and reminds employers that they can still be held responsible for “mixed or inconsistent” messaging. Employees may not waive their Section 7 rights and consent to overbroad agreements. Employers should work with counsel to prepare savings clauses and narrowly tailored non-disparagement and confidentiality provisions and avoid assuming that a savings clause alone will absolve them from any overbroad provisions in severance agreements.
- Agreements Will Be Reviewed Retroactively
The Memorandum contemplates retroactive enforcement, placing agreements entered into before February 21, 2023, at risk of violating the NLRA. While noting that the six-month statute of limitations set forth in Section 10(b) of the NLRA may apply, enforcing an overbroad provision in a severance agreement would constitute a new violation. The General Counsel recommends that organizations notify their former employees that the overly broad portions in existing severance agreements no longer apply.
- Supervisors Are Included in Protections Afforded Under the McLaren Macomb Decision
Although supervisors are generally not covered by the NLRA, an organization may violate the Act by retaliating against a supervisor who refuses to commit an unfair labor practice (“ULP”) on behalf of the employer. On this basis, the Memorandum identifies several situations under which offering an overbroad severance agreement to a supervisor could violate the NLRA. Employers should not assume that supervisory status automatically takes an employee out of the Memorandum’s scope.
- More Than Just Non-disparagement and Confidentiality Provisions Are Under Attack
The Memorandum concludes by identifying other common severance agreement provisions that the General Counsel believes “might interfere” with employees’ exercise of Section 7 rights, including non-competition provisions, non-solicitation provisions, anti-poaching provisions, broad liability releases and covenants not to sue beyond employer and/or employment claims, and cooperation agreements pertaining to investigations or proceedings that could limit an employee’s Section 7 rights. The Memorandum further states 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 if not narrowly tailored to address a special circumstance justifying impingement on workers’ rights,” including pre-employment communications and offer letters. Time will tell regarding the possible legal results of the NLRB’s apparent crossing over into subject areas that are beyond traditional Board purview.
Recommendations for Employers
It is foreseeable that employers may take a wait-and-see approach given the possibility for the McClaren Macomb decision to be appealed to the Federal Circuit Court of Appeals where Board law can be challenged and in a number of cases has been reversed. However, in the meantime, employers must be cautious in drafting and offering severance agreements. Employers should review prior severance agreements to understand the scope of potential violations of the NLRA and possible restrictions on enforcement of existing provisions. Future severance agreements and all severance agreement templates should be reviewed by counsel, with special attention to non-disparagement and confidentiality provisions. Employer should also use this opportunity to review employee handbooks, offer letters, and employment agreements for compliance with the NLRA.
