As has been widely reported, including in our February E-Update, the National Labor Relations Board recently asserted that severance agreements may not contain general non-disparagement or confidentiality/non-disclosure clauses, based on its premise that such clauses violate the rights of employees under Section 7 of the National Labor Relations Act to engage in concerted activity for their mutual aid or protection (i.e. “protected concerted activity”). This ruling was troubling for unionized and non-union employers alike. General Counsel Jennifer Abruzzo has now issued a memo expressing her views regarding the practical impact of this ruling.
In the February 21, 2023 case, McLaren Macomb, the severance agreement in question contained two provisions of concern to the Board:
- A confidentiality provision that prohibited the employee from discussing the terms of the agreement other than with their spouse, their attorney or their tax advisor, or as compelled to do so by a court or governmental agency.
- A nondisclosure and non-disparagement provision that prohibited the employee from disclosing confidential, privileged or proprietary information, and from making disparaging comments about the employer and its officers, directors, employees, agents and representatives.
The Board stated that “a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights, and that employers’ proffer of such agreements to employees is unlawful.” The acceptance or nonacceptance of the agreement by the employee is “immaterial,” as the “mere proffer of the [unlawful] agreement itself violates the Act.” The Board will look to the specific language of severance agreement provisions, like these non-disparagement and confidentiality provisions, and will consider such language unlawful if, read broadly, it could potentially impact employees’ Section 7 rights. But employers questioned what the Board’s ruling actually meant from a practical perspective.
In Memorandum GC 23-05, the GC attempted to address some of those questions. While this memo purports to provide practical guidance on the impact of the McLaren Macomb decision, we note that this in fact is the GC’s opinion and may not necessarily be upheld by the Board or reviewing courts. Moreover, this memo raises more questions than it answers. Some of those may eventually be resolved in future NLRB decisions and memos, or court decisions.
The GC asserts the following:
- Severance agreements are not generally banned. However, they may not contain provisions (like broad confidentiality and non-disparagement clauses) that impact employees’ ability to engage in protected concerted activity – and to communicate about such activity with the Board, their union, the media or other third parties, as well as in courts or administrative or legislative forums.
- The employer’s reasons for including such provisions do not matter. The GC states that employers can have no legitimate interest in maintaining unlawful provisions.
- It doesn’t matter if the employee signs the agreement or not. The proffer of the unlawful agreement is a violation of the law.
- Supervisors are generally not subject to this restriction. Supervisors are generally not protected by the Act; however, the GC asserts that a supervisor is protected from retaliation for refusing to commit an unfair labor practice on behalf of the employer. We note, however, that this circumstance is quite unusual, and there will generally be no limitations on confidentiality and non-disparagement provisions in severance agreements with supervisors and managers.
- The Board’s ruling applies retroactively to past agreements. The GC further suggests that employers should notify former employees that any overbroad provisions will no longer apply.
- The overbroad provisions will not render the entire severance agreement null and void. One piece of good news for employers is that the GC states that only the problematic provisions will be struck from the severance agreement, leaving the rest (including releases of claims) in place. The GC again suggests employers contact former employees and “advis[e] them that any overbroad confidentiality and/or non-disparagement 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.”
- This ruling applies to former – not just current – employees. Consequently, we believe the GC may construe this to apply to severance and settlement agreements with former employees.
- It doesn’t matter if the employee is the one who asks for the broad confidentiality and/or non-disparagement provisions. They would still be unlawful.
- The prohibition on overly broad provisions applies to other employer communications, such as pre-employment or offer letters.
- Confidentiality clauses may be lawful 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.”
- Non-defamation clauses may be lawful if they are “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.”
- A “savings clause” or disclaimer will not necessarily save overbroad provisions in a severance agreement. Although the GC notes such language may be “useful to resolve ambiguity over vague terms,” they would not necessarily save overly broad provisions if there is a mixed or inconsistent message. The GC has recommended that the Board formulate a “model prophylactic statement of rights” that employers may use in handbooks and severance agreements. Although the Board has yet to take up the GC’s recommendation, the information that she suggests to be included in such a statement is exceedingly extensive, setting forth employees’ rights to engage in:
- organizing a union to negotiate with their employer concerning their wages, hours, and other terms and conditions of employment;
- forming, joining, or assisting a union, such as by sharing employee contact information;
- talking about or soliciting for a union during non-work time, such as before or after work or during break times, or distributing union literature during non-work time, in non-work areas, such as parking lots or break rooms;
- discussing wages and other working conditions with co-workers or a union;
- taking action with one or more co-workers to improve working conditions by, among other means, raising work-related complaints directly with the employer or with a government agency, or seeking help from a union;
- striking and picketing, depending on its purpose and means;
- taking photographs or other recordings in the workplace, together with co-workers, to document or improve working conditions, except where an overriding employer interest is present;
- wearing union hats, buttons, t-shirts, and pins in the workplace, except under special circumstances; and
- choosing not to engage in any of these activities.
- Other severance agreement provisions can also be problematic. Of additional concern, the GC notes that similar issues about unlawful limitations on protected concerted activity could exist in other overbroad provisions, including: non-compete clauses; no solicitation clauses; no poaching clauses; broad liability releases and covenants not to sue that may go beyond the employer and/or may go beyond employment claims and matters as of the effective date of the agreement; cooperation agreements involving investigations.
Employers should certainly consult with counsel as to whether any changes need to be made to their standard severance agreements.