NLRB Requires Changes to Employee Severance and Other Agreements

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Earlier this year, the National Labor Relations Board ("NLRB") issued its decision and order in McLaren Macomb, 372 NLRB No. 58 (February 21, 2023), holding that certain confidentiality and non-disparagement provisions contained in employee severance agreements violate employees' rights under the National Labor Relations Act ("NLRA") and that the mere proffer of such provisions in a severance agreement is unlawful.1 McLaren Macomb involved a severance agreement that "broadly prohibited [employees] from making statements that could disparage or harm the image of the [employer] and further prohibited them from disclosing the terms of the [severance] agreement" to any third party. The NLRB determined that such provisions have a reasonable tendency to interfere with, restrain, or coerce the exercise of employee rights under Section 7 of the NLRA. Section 7 of the NLRA permits employees, regardless of whether unionized, to engage in concerted activities for their mutual aid and protection.

The NLRB, in its McLaren Macomb decision, stated that the non-disparagement provision was unlawful because it would extend to efforts to assist fellow employees by, among other things, raising or assisting complaints about the employer with their former coworkers, a union, the NLRB, any other government agency, the media or almost anyone else. Specifically, the NLRB noted, among other things, that the non-disparagement provision (i) was not limited to matters regarding past employment with the employer and would, in fact, encompass employee conduct regarding any labor issue, dispute, term or condition of employment, (ii) applies also to the employer's parent and affiliated entities and their respective officers, directors, employees, agents and representatives, and (iii) has no temporal limitation as it applies "[a]t all times thereafter." The NLRB noted that employees have the right to critique employer policy by publicizing labor disputes subject only to not being "disloyal, reckless or maliciously untrue."

The NLRB also objected to the severance agreement's confidentiality provision because it precludes the employee from disclosing to the NLRB or others an unlawful provision contained in the severance agreement, and also precludes the employee from discussing the severance agreement with former coworkers who may need to decide in the future whether to accept a severance agreement. In this regard, the NLRB stated that a provision is unlawful "if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the [NLRB], about [the employee's] employment."

The NLRB's General Counsel's office published a memorandum on March 22, 2023 (the "NLRB Memorandum"), entitled "Guidance in Response to Inquiries about the McLaren Macomb Decision." The NLRB Memorandum is intended to provide guidance regarding the application of the McLaren Macomb decision on severance and other agreements. The following is a summary of some of the main points discussed in the NLRB Memorandum:

Q: Does the McLaren Macomb decision apply to supervisors?

A: Supervisors are generally not protected by the NLRA and therefore the McLaren Macomb decision should not apply to severance agreements provided to supervisors, except in very limited circumstances. The NLRB Memorandum notes that the McLaren Macomb decision will apply to a supervisor to the extent that the supervisor is retaliated against for refusing to commit an unfair labor practice by proffering an unlawful severance agreement to employees, or if an employer proffers a severance agreement to a supervisor to, among other things, prevent the supervisor from participating in an NLRB proceeding or in certain circumstances assisting non-supervisors in exercising their Section 7 rights under the NLRA.

Q: Would the entire severance agreement be invalidated if there is just one overbroad provision?

A: The NLRB generally makes decisions based solely on the unlawful provisions and would seek to have those voided out rather than the entire agreement, regardless of whether there is a severability clause or not. The NLRB Memorandum notes that the NLRB has settled cases involving severance agreements with unlawfully broad terms by requiring the employer to notify its former employees that the overbroad provisions no longer applied.

Q: Does the McLaren Macomb decision apply retroactively to severance agreements entered into prior to February 21, 2023?

A: Yes, the decision has retroactive application, and maintaining and/or enforcing a previously entered severance agreement with unlawful provisions continues to be a violation of the NLRA. The NLRB General Counsel recommends that employers should consider remedying such violations now by notifying employees subject to such severance agreements that the provisions are null and void and will not be enforced by the employer. The NLRB Memorandum states that this conduct could help employers if an unfair labor practice charge is brought regarding the severance agreement in the future.

Q: Can non-disparagement provisions still be included in severance agreements?

A: Yes, a narrowly tailored, justified, non-disparagement provision that is limited to employee statements about the employer that meet the definition of defamation as being maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity, may be found lawful. The NLRB Memorandum also discussed NLRB Operations-Management Memo 07-27 (published in 2007) ("OM 07-27") , which states, among other things, that prohibiting an employee from engaging in discussions with other employees that include non-defamatory statements about the employer severely limit the employee's right to engage in concerted protected speech.

Q: Can confidentiality provisions still be included in severance agreements?

A: Yes, narrowly tailored provisions restricting the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications may be considered lawful. However, confidentiality provisions are unlawful if they have a chilling effect that precludes employees from assisting others about workplace issues and/or from communicating with the NLRB, a union, legal forums, the media or other third parties. OM 07-27 states, among other things, that confidentiality clauses that prohibit an employee from disclosing the financial terms of a settlement to anyone other than the person's family, attorney and financial advisor are normally acceptable. However, any prohibition that goes beyond the disclosure of the financial terms should not be approved, absent compelling circumstances.

Q: Are there other provisions in severance agreements that the NLRB General Counsel views as problematic?

A: Yes, in addition to confidentiality, non-disclosure and non-disparagement provisions, other provisions that might interfere with employees' Section 7 rights include: non-compete clauses; no solicitation clauses; no poaching clauses; broad liability releases and covenants not to sue that go beyond the employer and may go beyond employment claims and matters as of the effective date of the severance agreement; cooperation requirements involving any investigation or proceeding involving the employer as that affects an employee's right to refrain, such as if the employee was asked to testify against co-workers that the employee assisted with filing an unfair labor practice charge.

In this regard, OM 07-27 states that it is generally unlawful to require employees to waive a statutory right to file charges with the NLRB, to prohibit assistance to other employees in the investigation or trial of NLRB charges or to waive future rights. However, an employer can, in exchange for sufficient consideration, require the employee to waive claims arising prior to the date of the execution of the release and waive the right to seek future employment with the employer or its affiliates. OM 07-27 also states that unduly harsh penalties for the employee's breach of the agreement in any way may be unlawful. Such penalties may include the immediate return of back pay, frequently with interest, and payment of all costs and expenses, including attorneys' fees. Inclusion of such penalties may inhibit employees from engaging in an otherwise legitimate, protected activity because of fear that such activity might be construed as violating the agreement, resulting in severe financial consequences. However, a provision that seeks damages that are directly related to the breach of the agreement would not be considered an unduly harsh penalty.

Q: Would a savings clause or disclaimer save overbroad provisions?

A: While specific savings clause or disclaimer language may be useful to resolve ambiguity over vague terms, they would not necessarily cure overly broad provisions. The NLRB Memorandum notes that the NLRB General Counsel previously suggested model language to include in employee handbooks to make it clear that employees had rights to engage in, among other things, discussing working conditions with co-workers or a union.

Q: Is the McLaren Macomb decision limited to severance agreements?

A: Although the decision relates to severance agreements, the NLRB Memorandum states that overly broad provisions in any employer communication to employees, including pre-employment or offer letters, would be unlawful if not narrowly tailored to address a special circumstance justifying the provision.

1 In doing so, the NLRB overruled its prior decision in Baylor University Medical Center, 369 NLRB 43 (2020), which held a severance agreement to be unlawful only if there was a showing of animus and additional coercive or otherwise unlawful conduct by the employer, in addition to the overbroad language of a severance agreement.

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