As we previously reported, on Feb. 21, 2023, the National Labor Relations Board (NLRB) held in McLaren Macomb that offering employees severance agreements containing broad confidentiality and non-disparagement agreements may violate the National Labor Relations Act (NLRA). On March 22, 2023, NLRB General Counsel Jennifer Abruzzo released a memorandum interpreting the McLaren decision and providing guidance on severance agreement language. General Counsel Memorandum 23-05 (memo). The General Counsel’s memo addressed many questions that have been top of mind for employers since the decision was released:

Does the McLaren decision apply retroactively?

The NLRB will apply the McLaren decision retroactively. In addition, while merely offering a severance agreement containing unlawful terms is subject to the NLRA’s six-month time limitation, maintaining or enforcing a severance agreement with unlawful provisions is a continuing violation under the NLRA and would not be time-barred. The memo suggests that employers consider remedying these continuing violations by contacting employees subject to severance agreements with overbroad provisions and informing them that the provisions are null and void and that the employer will not seek to enforce them.

Does the inclusion of unlawful terms invalidate an entire severance agreement?

The memo states that NLRB’s regional offices “generally make decisions based solely on the unlawful provisions and would seek to have those voided out as opposed to the entire agreement.” However, employers should keep in mind that in McLaren, the NLRB invalidated the entire severance agreement because it found that it contained unlawful confidentiality and non-disparagement provisions.

How does the McLaren decision affect other employer communications and agreements with employees?

In addition to severance agreements, overly broad provisions that interfere with Section 7 rights contained in other employer communications or agreements, such as pre-employment communications or offer letters, are unlawful if they are not narrowly tailored to address a special circumstance that justifies the interference with workers’ rights.

Could a confidentiality provision ever be lawful under McLaren?

Confidentiality provisions are permissible if they are “narrowly-tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications.” Clauses which restrict employees from discussing the terms of a severance agreement with other employees are generally unlawful because they restrict employees’ rights under the NLRA. However, in a footnote, the General Counsel states that the NLRB’s regional offices may approve a withdrawal request when a non-board settlement agreement has a confidentiality clause only with regard to non-disclosure of the financial terms of the agreement without running afoul of the McLaren decision. This suggests that confidentiality clauses which are narrowly tailored to prohibit an employee from disclosing only the amount of payments made under a severance agreement may be permissible.

Could a non-disparagement provision ever be lawful under McLaren?

The memo suggests that a non-disparagement provision that is limited to an employee’s statements about the employer that meet the definition of defamation (i.e., “maliciously untrue statements”) may be found lawful. A non-disparagement provision that encompasses all disputes, terms and conditions, and issues, and which applies to the employer’s parents, affiliates, and their officers, representatives, employees, directors, and agents would be overbroad and unlawful.

Would a NLRA disclaimer save overbroad provisions in a severance agreement?

While the General Counsel states that a disclaimer or savings clause may be useful to resolve ambiguity or vague terms, it would not necessarily cure overbroad provisions.  The memo further states that the employer would still be liable for any “mixed or inconsistent messages provided to employees that could impede the exercise of Section 7 rights.”

Are severance agreements issued to supervisors governed by McLaren?

While supervisors are generally not protected by the NRLA, the act does protect supervisors who are retaliated against because they refused to violate the NLRA per their employer’s directives. Thus, an employer may violate the NLRA if it offers a severance agreement that is unlawful under McLaren to a supervisor after the supervisor refused to violate an employee’s Section 7 rights. Outside of these unusual situations, employers may include confidentiality and non-disparagement provisions in severance agreements with individuals who are considered supervisors under the NLRA.

What other provisions in severance agreements may violate the NLRA?

The memo lists several other common provisions which the General Counsel outlines might interfere with employees’ Section 7 rights, including: non-compete clauses, non-solicitation clauses, no-poaching clauses, overly broad liability releases and covenants not to sue, and cooperation requirements involving any current or future investigation or proceeding before the NLRB. Although this is General Counsel Abruzzo’s opinion, the NLRB has not rendered any decisions regarding these clauses as it did on the confidentiality and non-disparagement clauses.

Next steps for employers

The General Counsel’s memo makes clear that the NLRB intends to enforce severe limits on several provisions that are commonly included in severance and other agreements with employees. Employers should work with counsel to review and update any form severance agreements to ensure that they align with the new guidance and discuss any actions that may be necessary or appropriate with respect to existing agreements.