Severance agreements have long been utilized as a valuable tool for providing employers with protections from the post-employment conduct or claims of former employees. Severance agreements often include a wide range of protections, including non-disparagement, confidentiality, non-compete, no poaching, and no solicitation clauses; broad releases of claims; and covenants not to sue, among other things. The National Labor Relations Board’s recent decision in McLaren Macomb, however, calls these sorts of provisions and others into question when it comes to non-management employees, drastically altering the landscape of severance agreements and significantly impairing employers’ abilities to protect themselves.
The decision, entered on February 21, 2023, explored the legality of a severance agreement offered to non-management employees that included a broad non-disparagement clause and a confidentiality clause with respect to the terms of the severance agreement. Straying from its past precedents, the National Labor Relations Board (the “Board”) held these provisions to be an unfair labor practice in violation of the National Labor Relations Act (the “Act”).
But the Board did not stop there. The Board broadly interpreted employee rights under the Act, noting its “broad scope and wide protection[s]” for employees. The Board also articulated a new, highly stringent standard for reviewing an employers’ offering of a severance agreement. Under the new standard, if an employers’ conduct can even reasonably be said to interfere with the employees’ broad rights under the Act, the employers’ conduct may constitute an unfair labor practice. Even if the provision does not directly interfere with an employees’ rights, it can nonetheless be unlawful if it “chills,” or hinders, the employees’ exercise of their rights under the Act. Moreover, merely offering a severance agreement that infringes on employees’ rights under the Act is unlawful, whether or not the employee actually accepts the terms of the agreement.
The decision made clear that for lower-level employees, non-disparagement clauses are now limited to prohibiting only statements that are “so disloyal, reckless or maliciously untrue as to lose the Act’s protection,” confidentiality clauses must be narrowly drafted to only include protected information such as trade secrets, and employees’ rights under the Act will be interpreted very broadly going forward. The full extent of the decision, however, remains an open question.
General Counsel Guidance
In an attempt to resolve the questions left unanswered by the decision, the Board’s General Counsel Jennifer Abruzzo issued a guidance memo (the “Memo”) on the decision in March 2023. General Counsel makes clear that severance agreements are not banned per se:
She noted that prior Board decisions approved severance agreements where the releases waived only the signing employee’s right to pursue employment claims and only as to claims arising as of the date of the agreement. “[L]awful 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.” Nonetheless, the Memo fell short of providing the necessary guidance as to what terms such an agreement could lawfully include.
The Memo made clear that the decision has retroactive application, meaning that even having offered a severance agreement in the past that infringes on employees’ rights under the Act can be considered an unfair labor practice. The Memo noted, however, that the six-month statute of limitations generally applicable to unfair labor charges would be applicable to any such claims. Thus, for agreements that were offered more than six months ago, an employer would not be subject to liability based merely on having offered such an agreement. For agreements that were actually entered into with such provisions, however, the Memo warned that this could constitute a “continuing violation” of the Act and still subject the employer to adverse action.
The Memo also recognized the wide reach of the decision, noting its potential application to non-compete clauses, no solicitation clauses, no poaching clauses, broad liability releases, and covenants not to sue.
While on its face it seems helpful that General Counsel provided some post-McLaren Macomb guidance to employers, the guidance signals the likelihood that the Board will continue to aggressively scrutinize severance agreements and other employer practices that the NLRB believes may impinge upon employees’ Section 7 rights.
The Implications on Employers & the Future of Severance Agreements
The decision severely limits employers’ abilities to continue to maintain the protections they have traditionally been able to enjoy through severance agreements. With respect to non-disparagement clauses, such provisions have essentially been rendered null and void. General Counsel warns in the Memo that “[i]t is critical to remember that public statements by employees about the workplace are central to the exercise of employees’ rights under the Act.” Thus, the only protections that would be permissible under the Act are already covered under current defamation law. Thus, including non-disparagement clauses is now generally ill-advised as these clauses often provide no benefit while exposing the employer to a potential unfair labor charge. Confidentiality clauses, however, can continue to protect proprietary or trade secret information. These provisions will remain a valuable tool to offer employers’ protection from the dissemination of such information, but any such provisions must be carefully crafted as even the potential for infringement on employees’ rights can now constitute an unfair labor practice.
“[C]onfidentiality clauses that have a chilling effect that precludes employees from assisting others about workplace issues and/or from communicating with the Agency, a union, legal forums, the media, or other third parties are unlawful.”
Aside from the implications on non-disparagement and confidentiality clauses, the decision has substantial effects on other provisions commonly found in employment agreements as well. As recognized in the Memo, this includes non-compete clauses, no solicitation clauses, no poaching clauses, broad liability releases, and covenants not to sue.
Moreover, based on its broad language, the decision’s reasoning appears equally applicable to other agreements with employees. This could include employment agreements and settlement agreements with former non-management employees, among others, containing terms with the potential to infringe on the employees’ rights under the Act.
Severance clauses, stating that any unlawful term of the agreement does not render the remainder of the agreement void, should continue to be utilized by employers. While such clauses will not protect an employer who offers an agreement with unlawful terms under the Act from action by the Board, these clauses may nonetheless allow the remainder of the agreement to be enforceable.
While the decision has retroactive application, it is unlikely that an employer has any obligation to notify past employees of the unenforceability of such provisions as such a requirement would not be practical. Nonetheless, clearly employers can no longer continue to enforce these provisions and employers should refrain from doing so. General Counsel observed that “while an unlawful proffer of a severance agreement may be subject to the six-month statute of limitation language under Section 10(b), maintaining and/or enforcing a previously entered severance agreement with unlawful provisions that restrict the exercise of Section 7 rights continues to be a violation and a charge alleging such beyond the Section 10(b) period would not be time-barred.”
Because supervisory and management employees are not protected by the Act, the decision is not likely to apply to agreements entered into with such employees. Thus, Employers can continue to maintain and enforce these sorts of provisions as to supervisory employees. That said, General Counsel made clear in the Memo that the Act does protect a supervisor who is retaliated against, such as being fired, because they are refusing to act on their employer’s behalf in committing an unfair labor practice against employees.
The full effects of the decision remain to be seen at this early stage. Nonetheless, at least two things are abundantly clear. First, the decision is intended to be interpreted very broadly and to offer a wide range of protections for non-management employees. General Counsel’s Memo undoubtedly bespeaks of an aggressive investigative posture going forward. Agreements with non-management employees must be very narrowly drafted to avoid falling victim to the decision’s substantial reach. As such, employers should reassess their employment, severance, and settlement agreements to ensure compliance with the Act.