Last month, the National Labor Relations Board (NLRB) ruled that an employer violates Section 8(a)(1) of the National Labor Relations Act (NLRA or Act) when the employer offers employee severance agreements with provisions restricting employees’ Section 7 rights under the Act, such as with overly broad confidentiality and non-disparagement provisions. McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023) (read about the decision here). In response to inquiries from workers, employers, and labor organizations, NLRB General Counsel Jennifer A. Abruzzo released Memorandum GC 23-05 on March 22, 2023, to express her views on the implications stemming from that case.
- Severance Agreements Generally. Lawful severance agreements are not banned by the NLRA, provided “they do not have overly broad provisions that affect the rights of employees to engage with one another to improve their lot as employees.” The General Counsel specifically noted that employees cannot be prohibited from utilizing channels outside of the immediate employee-employer relationship, such as the Board, a union, judicial, administrative or legislative forums, and the media or other third parties.
- Proffer Unlawful. Whether or not the employee actually signs the severance agreement is irrelevant for finding a violation of the Act. Rather, the offer itself “inherently coerces employees by conditioning severance benefits on the waiver of statutory rights such as the right to engage in future protected concerted activities and the right to file or assist in the investigation and prosecution of charges with the Board.”
- Supervisors. Although supervisors generally fall outside the definition of “employees” under the Act, the General Counsel stated that she believes an employer nevertheless violates the Act if: (1) a supervisor is retaliated against for refusing to offer an unlawfully overbroad severance agreement to employees; or (2) an employer proffers a severance agreement to a supervisor in connection with preventing the supervisor from participating in a Board proceeding.
- Retroactivity. The General Counsel expressed her view that the McLaren Macomb decision applies retroactively to severance agreements entered into before February 21, 2023, since Board decisions are presumed to apply retroactively unless manifest injustice requires prospective application. While the proffer itself is subject to the Act’s six-month limitations period, enforcing unlawful provisions would continue to be a violation, in the General Counsel’s opinion. The Memo offers no views on whether retroactive application implicates constitutional issues of contract impairment.
- Severability. The Memo states that, while each case is fact-specific, the Regions generally will not seek to invalidate the entire severance agreement, but only to void unlawful provisions. This is the case regardless whether the agreement contains a severability provision. The General Counsel advised employers to consider remedying past violations by advising former employees that overbroad provisions of their separation agreements are null and void.
- Savings Clauses. According to the General Counsel, a savings clause or disclaimer, protecting Section 7 rights, would not necessarily cure overly broad provisions, and the employer still could be liable for “mixed or inconsistent messages.” If an employer wants to use a savings clause, the Memo suggests that the employer must affirmatively and specifically set forth employee statutory rights — enumerating at least nine rights individually — and explain that nothing in the agreement should be interpreted to restrict such rights. The General Counsel referred to the lengthy (and unwieldy) model prophylactic statement of rights set forth in her brief to the Board in the Stericycle case involving overbroad handbook provisions.
The Memo also provides guidance on what the General Counsel regards as lawful confidentiality and non-disparagement provisions. Confidentiality clauses that are narrowly tailored to restrict dissemination of “proprietary or trade secret information” and are time-limited based on legitimate business justifications may be considered lawful. The General Counsel also suggested that non-Board settlements with confidentiality limited to the financial terms of the settlement may be acceptable. Non-disparagement statements may be lawful if they are limited to “employee statements about the employer that meet the definition of defamation as being maliciously untrue,” when made with knowledge of their falsity or with reckless disregard for their truth. Again, the General Counsel suggested that placing a time limit on such clauses could make them more enforceable.
The General Counsel concluded by saying that other severance agreement provisions may violate Section 7 of the NLRA, including non-compete clauses, no solicitation clauses, no poaching clauses, broad liability releases reaching beyond the employer, and cooperation requirements impacting Section 7 rights. The General Counsel offered no view as to how the Board has jurisdiction over some of these issues.
Given the McLaren Macomb decision and Memorandum GC 23-05, now is an opportune time for employers to review their standard severance agreements. Ballard Spahr’s Labor & Employment attorneys regularly work with both unionized and non-unionized employers in preparing severance agreements so that they are compliant not only with the latest NLRB guidance, but also with the array of other employment laws at the local, state and federal levels.