NLRB Releases Guidance Restricting Confidentiality and Non-Disparagement Provisions in Severance Agreements
On March 22, 2023, the General Counsel for the National Labor Relations Board (NLRB) issued a memorandum attempting to clarify the NLRB’s recent decision in McLaren Macomb that employers violate the National Labor Relations Act (NLRA) in offering severance agreements with broad confidentiality and non-disparagement provisions. The memorandum announces critical guidance concerning the impact of a decision the NLRB claims “return[s] to longstanding precedent” under the NLRA but in practice severely limits the rights of employers to negotiate and enforce confidentiality and non-disparagement protections with departing employees. The General Counsel’s memorandum further specifies that McLaren Macomb applies retroactively to existing agreements and policies with current and former employees.
McLaren Macomb Background:
In McLaren Macomb, issued on February 21, 2023, the NLRB held that where an employer offered departing employees severance agreement that contained broad confidentiality and non-disparagement provisions, the act of merely presenting the agreement to the employees violated the NLRA—even though the departing employees voluntarily agreed to the terms in the agreement in exchange for severance benefits. McLaren Macomb pertained to particular severance agreements offered to union employees at a hospital in Michigan who were furloughed during the COVID-19 pandemic. The decision expressly overruled two prior decisions by a differently constituted NLRB and announced new restrictions on confidentiality and non-disparagement provisions broadly applicable to all employers covered by the NLRA with union or non-union employees.
NLRB General Counsel March 22, 2023 Memorandum:
The NLRB’s General Counsel issued a memorandum on March 22, 2023, “to address inquiries from workers, employers, labor organizations, and the public about implications stemming from [McLaren Macomb]. . . .” According to the NLRB’s General Counsel:
- The McLaren Macomb decision applies retroactively, meaning the new restrictions can invalidate provisions in severance agreements agreed to prior to the decision. However, the NLRA’s six-month statute of limitations may limit challenges by the NLRB to old severance agreements, at least where the employers are not actively seeking to enforce confidentiality and non-disparagement provisions.
- The decision does not apply to executives, managers, supervisors, and independent contractors (but only because they are outside the definition of “employees” covered by the NLRA). However, the NLRA prohibits retaliation against supervisors for refusing to proffer an overly broad severance agreement to employees.
- Some “narrowly tailored” confidentiality and non-disparagement provisions may be enforced. For example, confidentiality clauses may lawfully “restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications.” Similarly, non-disparagement clauses may lawfully prohibit “employee statements about the employer that meet the definition of defamation as being maliciously untrue.”
- Severance agreements with overly broad confidentiality or non-disparagement provisions will not necessarily invalidate agreements in their entirety. Rather, the NLRB “generally makes decisions based 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.”
What this Means for Employers:
The NLRB General Counsel’s memorandum warns that other provisions in “severance-related agreements” could violate the McLaren Macomb standards—and therefore Section 7 of the NLRA—if they have a tendency to chill employee rights under the NLRA. For example, the NLRB also may scrutinize: non-compete and non-solicitation clauses; cooperation requirements; covenant-not-to-sue clauses; and broad liability releases.
The NLRB guidance likely will be subject to legal challenges and could be overturned in a new administration. Employers should have legal counsel review all employment policies, severance agreements, and confidentiality and non-disparagement provisions with current and departing employees—and evaluate now whether existing or prior agreements and policies conflict with this NLRB authority. When an agreement contains provisions determined by the NLRB to violate the NLRA, the General Counsel advises that a case-by-case assessment will be made as to whether the entire agreement is void or only the unlawful provisions.
Brooks Pierce employment attorneys regularly advise employers on the NLRA and other federal and state employment and labor law compliance, including review of existing policies and agreements and preparation of agreements for departing employees. For assistance on any of these issues, please contact a member of our Labor & Employment Team.