NLRB General Counsel Releases Memo Concerning Confidentiality and Non-Disparagement Clauses in Severance Agreements Post-McLaren
On March 22, 2023 Jennifer Abruzzo, General Counsel (“GC”) of the National Labor Relations Board (“NLRB” or the “Board”) issued a memorandum intended to assist the Regions in responding to inquiries regarding the Board decision in McLaren Macomb, 372 NLRB No. 58 (2023).
As we previously reported, the Board’s decision in McLaren overturned a Trump-era ruling which gave employers certain latitude in drafting and executing severance agreements with their employees. Now, employers can no longer offer severance agreements which contain non-disparagement and confidentiality clauses that have “a reasonable tendency to interfere with or coerce employees in the exercise of their Section 7 rights.” The mere proffer of such an agreement by an employer to an employee will be deemed unlawful under by the Board.
In her memo, GC Abruzzo emphasized that the severance agreement at issue in McLaren contained overly broad non-disparagement and confidentiality clauses that interfere, restrain or coerce employees’ exercise of their Section 7 rights under the National Labor Relations Act (the “Act”). Further, Abruzzo emphasized that the Board’s underlying policy and purpose depends on employees’ freedom to engage in Section 7 rights and to assist one another and the Board in preservation of these rights, thus, employees and employers are not allowed to enter into agreements that broadly waive employee rights under the Act because such agreements restrict employees from engaging in activity protected by the Act or from filing unfair labor practice charges with the Board, helping other employees do so, or assisting the Board with investigations.
Abruzzo’s memo outlines specific issues that provide insight as to how the GC and NLRB Regional offices will now analyze the language of severance agreements and employer communications generally. The memo is not binding on the Board or the U.S. Courts of Appeals.
Severance agreements are not banned due to the Board’s Decision in McLaren.
Abruzzo emphasizes in the memo that prior Board decisions have approved and upheld severance agreements, and that only those which contain overly broad provisions, such as confidentiality and non-disparagement provisions that could affect an employees’ Section 7 rights will be deemed violative of the Act if proffered, maintained or enforced by an employer to an employee.
Circumstances surrounding the proffer of a severance agreement do not necessarily matter.
According to Abruzzo, the proffer of a severance agreement with provisions that contain overly broad language that affect employee Section 7 rights will be invalidated regardless of the circumstances surrounding the proffer. The GC states that the circumstances do not affect an analysis of whether the provisions are facially lawful and an employer cannot have a legitimate interest in maintaining a facially unlawful provision in a severance agreement.
The mere proffer of a severance agreement with overly broad provisions violates the Act regardless of whether the agreement is signed by the employee.
Abruzzo states that a mere proffer of an agreement with overly broad provisions inherently coerces employees by conditioning severance benefits on the waiver of their Section 7 rights; whether or not the employee actually signs the agreement is irrelevant for purposes of finding a violation of the Act.
The GC Memo suggests that the Board may extend the McLaren decision to apply to severance agreements issued to supervisors if related to unlawful conduct violative of Section 7 rights of employees.
As the Act’s protections do not extend to supervisors, Abruzzo claims that the decision in McLaren could apply to a severance agreement proffered to a terminated statutory supervisor who had refused to violate the NLRA per the employer’s directives. As examples, the memo states it would be violative for an employer to retaliate against a supervisor who refuses to proffer an unlawfully overbroad severance agreement and it could also be unlawful, in her view, for an employer to proffer a severance agreement to a supervisor in connection with Parker-Robb Chevrolet- related conduct.[1]
McLaren has retroactive effect.
Unless the Board made a determination that retroactive application of a decision would cause manifest injustice, decisions are presumed to have retroactive effect. The GC clarified that an unlawful proffer of a severance agreement is subject to the six-month statute of limitation of Section 10(b) of the Act, but if an employer attempts to maintain or enforce a previously-entered into agreement with overly broad provisions that predates McLaren and is outside the six-month statute of limitations, such actions would constitute a continuing violation and such a charge would not be time-barred. The GC importantly points out that Regions have required employers to notify former employees that the overbroad provisions of their severance agreements no longer applied as terms related to settlements of ULP charges.
In general, the Board will attempt to sever the overbroad, violative provisions of severance agreements instead of invalidating entire agreements.
“While it is necessary to review the facts of each and every case in the first instance,” Abruzzo points out that Regions “generally make decisions solely on the unlawful provisions and would seek to have those voided out as opposed to the entire agreement, regardless of whether there is a severability clause or not.” The Memo also suggests that employers consider remedying violations of McLaren proactively by contacting former employees subject to severance agreements with overly broad provisions and advising them that the provisions are null and void and that they will not seek to enforce the agreements or pursue any penalties, monetary or otherwise, for breaches of those unlawful provisions. Such proactive conduct would form the basis for consideration of a merit dismissal by the Board if a charge solely alleging an unlawful proffer is filed against an employer.
The protections of the NLRA apply to all employees, whether current or former.
According to the GC, employees are entitled to the same protections under the NLRA as current employees and the definition of employee in Section 2(3) is not limited to employees of a particular employer. Further, coworkers and former employees can have a role in providing evidence to the Board that constitutes mutual aid and protection under the Act.
Neither Employees nor Unions can voluntarily agree to waive Section 7 rights by suggesting and agreeing to overly broad language in severance agreements.
The GC claims that even if an employee or a union suggests such overly broad non-disparagement or confidentiality language, the language and provisions would still violate the Act as the language would restrict the future exercise of Section 7 rights.
Non-Board settlement agreements are still allowed and OM 07-27 guidance is consistent with McLaren.
Per Abruzzo, OM 07-27 and the guidance it provides for terms of non-Board settlements is consistent with McLaren, which include: waivers of the right to file NLRB charges on future unfair labor practices and on future employment; waivers of the right to assist other employees in the investigation and trial of NLRB cases; narrowly-tailored confidentiality clauses and clauses that prohibit an employee from engaging in non-defamatory talk about the employer; and unduly harsh penalties for breach of the agreement.
Other employer communications with overly broad provisions could also be deemed violative of the Act.
Although McLaren specifically discusses provisions in severance agreements, communications in other items such as pre-employment offer letters that contain overly broad provisions that could be construed to interfere with, restrain or coerce employees’ exercise of Section 7 rights would be unlawful if they are not narrowly tailored to address special circumstances justifying the impingement on workers’ rights.
Narrowly-tailored confidentiality provisions may still be considered lawful.
Examples of narrowly-tailored confidentiality provisions that may be deemed lawful by the GC are such that restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications or provisions that contain a confidentiality clause with regard to non-disclosure of the financial terms only. But it is important to recall that confidentiality 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.
Narrowly-tailored non-disparagement provisions may still be considered lawful.
Examples of unlawful overly broad non-disparagement clauses include those than ban disclosure of all disputes, terms and conditions, and issues without temporal limitations that also apply to parent, affiliated entities and an entity’s officers, representatives, employees, directors and agents. An example of a narrowly-tailored non-disparagement clause is one that is limited to employee statements about the employer that are defamatory and maliciously untrue, such that they are made with knowledge of the falsity or with reckless disregard for the truth or falsity of the statement.
A savings clause would not save overly broad provisions in a severance agreement.
The GC states that savings clauses are useful for ambiguity over vague terms, but the employer would still be liable for any communications that could restrict an employees’ Section 7 rights.
The GC and the Board may look to categorize other provisions traditionally found in severance or other employment agreements violative of the Act.
Abruzzo states that confidentiality and non-disparagement provisions are not the only ones found in severance and other agreements that she believes restrict Section 7 rights and thus violate the Act. According to Abruzzo, non-compete, no solicitation, no poaching, broad liability releases and covenants not to sue that go beyond the employer and go beyond employment claims and matters as of the effective date of the agreement, and cooperation requirements involving investigations or proceedings involving the employer as that affects an employee’s right to refrain under Section 7, such as if the employee was asked to testify against co-workers that the employee assisted with filing a ULP charge could all be considered violative of the Act.
Key Takeaways
It appears from the memo that other provisions of various agreements and employer communications in general will be analyzed with consideration given to whether the language is violative of employees’ Section 7 rights. This memorandum is consistent with the messaging that the Board will be aggressively seeking to protect employees’ Section 7 rights while severely limiting contract provisions previously available to employers. Thus, it is important for employers to review not only current and future severance agreements but any agreements or communications that could be construed to impede on employees’ Section 7 rights. Employers should consult skilled labor counsel to discuss the updated guidance and the issues presented by the General Counsel’s memo.
FOOTNOTES
[1] Parker-Robb Chevrolet conduct refers to participation by a supervisor in union or concerted activity. See Parker-Robb Chevrolet, 262 NLRB 401 (1982)
