On March 22, 2023, National Labor Relations Board (“NLRB” or “Board”) General Counsel, Jennifer Abruzzo (“General Counsel”), issued Memorandum General Counsel 23-05 (“Memo”) to answer questions arising from the Board’s McLaren Macomb, 372 NLRB No. 58 (2023) decision,[1] which declared certain confidentiality and non-disparagement clauses in severance agreements unlawful.
Scope of the NLRA
The National Labor Relations Act (“NLRA”) is a federal law that grants employees the right to join or form unions and to engage in other concerted conduct to address or improve working conditions. It covers most non-management private sector employees. It does not cover supervisors or governmental employees. Two central components of the NLRA are Section 7, which provides that employees have 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 concerted activities for the purpose of collective bargaining or other mutual aid or protection,” and Section 8, which makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7.”
The NLRB is the federal agency that enforces the NLRA. It has long relied on Sections 7 and 8 of the NLRA to prohibit employer conduct that the Board concludes will dissuade employees from exercising their rights under the NLRA.
NLRB Update
In McLaren, the NLRB concluded that a confidentiality and a non-disparagement provision in a severance agreement violated the NLRA because the provisions were so broad that they interfered in some way with employees exercising their rights under the NLRA. In the subsequent Memo, the General Counsel confirmed that the Board will apply the McLaren decision retroactively to severance agreements no matter when executed and that there is no time bar to “maintaining and/or enforcing a previously-entered severance agreement with unlawful provisions,” regardless of the NLRA’s six-month statute of limitations to file unfair labor practice complaints.
The Memo clarified that not all confidentiality and non-disparagement clauses are unlawful. Only employer communications, including severance agreements, with “overly broad provisions that affect the rights of employees to engage with one another to improve their lot as employees” are unlawful according to McLaren. Confidentiality provisions narrowly drawn to protect confidential business information are still permitted, as are confidentiality provisions that protect the financial terms of a severance agreement. As for the impact of McLaren on severance agreements predating it, the Memo indicates that such agreements may not be completely invalidated. The General Counsel noted that the typical practice in the NLRB’s regional offices has been to invalidate only the unlawful provisions regardless of whether there is a severability clause.
The General Counsel also labeled a number of other common severance agreement provisions “problematic” and potentially unlawful, including:
- noncompete clauses;
- nonsolicitation clauses;
- no poaching clauses;
- broad liability releases;
- covenants not to sue that extend beyond the employer or employment claims; and
- agreements requiring future cooperation in investigations or proceedings involving the employer.
Takeaways
The NLRA, and by extension, the McLaren decision, does not apply to agreements between employers and supervisors,[2] or governmental employees. Thus, McLaren will have little to no impact on severance agreements, or other release agreements, between employers and supervisors.
When asking a covered employee to sign a severance or other release agreement, employers need to carefully evaluate the scope of the confidentiality and non-disparagement clauses in light of the McLaren decision. While risky, some employers may opt to maintain broad confidentiality and non-disparagement clauses, but add a disclaimer that the confidentiality and nondisparagement provisions are not intended to and do not interfere with NLRA Section 7 rights. In the Memo, the General Counsel indicated that such disclaimers may be helpful in resolving ambiguities, but might not be enough to salvage a provision that the Board deems overtly unlawful or sends mixed or inconsistent messages.
A more cautious approach is to narrow confidentiality or non-disparagement clauses to protect only trade secrets and other confidential and proprietary business information and the financial terms of the severance agreement. The Memo also provides that employers can narrow non-disparagement clauses to prohibit statements that are “maliciously untrue such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity.”
The most conservative option would be for employers to remove confidentiality and non-disparagement clauses in severance agreements for employees covered by the NLRA. Employers will need to consider their goals in offering severance agreements. If the primary goal is a release of claims by the employee, then removal of these provisions might be of little consequence because it will likely have no impact on the scope of the release.
While the Memo is not legally binding and is only meant to guide NLRB field offices, it reflects the NLRB’s aggressive stance on severance and other release agreements. Therefore, employers should review their approach to severance payments and their form severance agreements with counsel.
[1] For more information on the McLaren decision, see our prior alert.
[2] Under 29 U.S.C.A. § 152(11) of the NLRA, “supervisors” means 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.
