Approximately a month after the Board issued McLaren Macomb, 372 NLRB No. 58, which left employers scrambling to decipher its unclear impact on both unionized and non-unionized workplaces, Jennifer Abruzzo, the General Counsel (“GC”) of the National Labor Relations Board (“NLRB” or “Board”) released guidance outlining her views on the decision’s implications and meaning in Memorandum GC 23-05 on March 22, 2023. The GC’s Memo contains an FAQ in response to inquiries the NLRB has received about the McLaren Macomb decision and outlines Abruzzo’s plans for enforcement of the decision.
In McLaren Macomb, as we discussed previously, the Board held that severance agreements that contain broad confidentiality and non-disparagement clauses are unlawful under the National Labor Relations Act (“Act” or “NLRA”) because the Board believes such clauses impermissibly infringe on employees’ rights under the Act. Moreover, the Board found that the mere proffering of a severance agreement that conditions receipt of its benefits on compliance with such provisions is itself a violation of the Act, regardless of whether an employee actually accepts the terms and signs the agreement.
The GC’s Memo reflects Abruzzo’s interest in dramatically expanding the boundaries of the Act’s coverage and employees’ rights under it, though the Board and ultimately the federal courts of appeals will decide whether Abruzzo’s more aggressive reading of McLaren Macomb is correct. In fact, in reading the GC’s Memo many employers may read it more as a warning than guidance as, in large part, it confirms the concerns employers had regarding the potential expansive impact of McLaren Macomb.
Guidance from the GC on the McLaren Macomb Decision
The Legality of Severance Agreements.
In the Memo, while the GC stated clearly that severance agreements are not “banned” under the Act, it went on to take the position that such agreements cannot lawfully contain the standard types of confidentiality and non-disparagement clauses parties have commonly used for decades. The GC couched this guidance by saying lawful severance agreements under the Act are limited to those that “do not have overly broad provisions that affect the rights of employees to engage with one another to improve their lot as employees.” As was discussed in the McLaren Macomb decision, the Memo goes on to opine that severance agreements may not prevent employees from engaging with the Board, their union, judicial or administrative or legislative forums, the media, or other third parties in furtherance of their Section 7 rights. In so doing the GC is clearly taking the position that many, if not most, typical confidentiality and non-disparagement provisions will be found to violate the Act.
Proffering A Severance Agreement with “Overly Broad” Terms.
The GC explained that she does not believe that the circumstances surrounding the proffer of an overly broad severance agreement matter because “an employer can have no legitimate interest in maintaining a facially unlawful provision in a severance agreement, much less an interest that somehow outweighs the Section 7 rights of employees.” This likely means that whether offered as part of a standard severance plan/policy, presented individually at the conclusion of an employee’s employment or negotiated as part of a settlement of claims, such provisions will be deemed unlawful by the GC.
Even if an employee does not sign the severance agreement containing a broad confidentiality and non-disparagement clause, the GC will still find that the employer engaged in unlawful activity by merely proffering the agreement itself.
Notably, the GC also explained that even if the employees themselves request the inclusion of broad confidentiality and/or non-disparagement clauses in their severance agreements, those clauses will still be unlawful, and employers will still have been found to have violated the Act for including those requested provisions in the agreement.
Lawful Confidentiality and Non-Disparagement Provisions.
The Memo loosely attempts to address what would constitute a lawful confidentiality or non-disparagement provision, but in so doing essentially confirms that most typical clauses will be deemed unlawful and what may remain likely will not achieve much of the legitimate business purposes employers typically want from these clauses.
For example, the Memo states that confidentiality clauses that are “narrowly-tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications” may be considered lawful but it does not clarify what those clauses may look like. What it impliedly does warn is that clauses prohibiting discussion of settlement/severance terms, including financial provisions, and/or discussion of any other employment conditions are unlawful. The only noted possible exception to this may be under a NLRB agency approved “non-Board settlement” of a pending unfair labor practice charge (discussed below).
On non-disparagement clauses, the Memo states that an “overly broad non-disparagement ban that encompassed all disputes, terms and conditions, and issues, without a temporal limitation and with application to parents and affiliates and their officers, representatives, employees, directors and agents” remains unlawful, but that a “narrowly-tailored, justified, non-disparagement provision” that is limited to a ban on defamation may be lawful. The GC defines defamation as statements that are “maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth.” Critically, the GC neglected to expand on what “without a temporal limitation” or “justified” might mean. Of course, most employers typically use the term disparagement purposely as it provides them business protection rather than a legal defamation standard (which they need no special agreement or consideration to prohibit).
Ultimately, and unfortunately, it is still unclear what exact language in confidentiality and non-disparagement provisions would pass muster under the current Board and GC – though it seems likely that not much would.
McLaren Macomb Applies to Union Workplaces, Non-Union Workplaces, and Former Employees.
The Memo confirms that the GC intends for the McLaren Macomb decisionto apply to all workplaces, including those that are not unionized, and to protect former employees, no matter how long they have been separated from employment. The GC specifically emphasized that former employees are entitled to the same protections of the Act as current employees. This means that severance agreements provided to former employees and employees not represented by a union will be subject to the same scrutiny by the Board as those severance agreements provided to current employees who are represented by a union.
Other Potentially Unlawful Provisions.
The GC also listed the following provisions typically included in severance and settlement agreements as ones that may also interfere with employees’ exercise of Section 7 rights. These provisions include:
- Non-compete clauses
- No solicitation clauses
- No poaching clauses
- Broad liability releases and covenants not to sue that go beyond the employer and/or employment claims and matters as of the effective date of the agreement; and
- Cooperation requirements regarding any current or future investigation or proceeding as it affects an employee’s rights under Section 7, such as if an employee was asked to testify against co-workers that the employee assisted with filing a ULP charge
Savings Clauses and Disclaimers.
The Memo clarifies that it is the General Counsel’s view that including specific savings clauses or disclaimer language in agreements would not necessarily cure overly broad provisions in a severance agreement and that the employer “may still be liable for any mixed or inconsistent messages provided to employees that could impede the exercise of Section 7 rights.” Given this guidance, it is unlikely that a broad disclaimer will absolve employers of liability for including provisions found to be unlawful in their agreements.
Severability of Unlawful Provisions.
The GC indicated her approval of voiding only the unlawful provisions in an agreement rather than voiding an entire agreement, regardless of whether there is a severability clause. Still, employers should be careful not to rely on severability clauses in their existing severance agreements to avoid unfair labor practice charges.
The GC also noted that Regions have settled unfair labor practice charges regarding severance agreements where employers agreed to notify their former employees that the provisions found to be unlawful in the severance agreements no longer applied to the employees.
Retroactivity of the McLaren Macomb Decision.
The GC intends for McLaren Macomb to apply retroactively to severance agreements that were entered into prior to February 21, 2023, the date McLaren Macomb was issued. The guidance further states that severance agreements are not subject to the Act’s six-month statute of limitations under Section 10(b) if employers continue to maintain and apply overly broad provisions because such maintenance and application would be considered a continuing violation of the Act. This means that severance agreements entered into prior to August 20, 2022 (6 months before February 21, 2023) could be found to violate the Act if employers continue to maintain and apply the agreements’ provisions found unlawful by McLaren Macomb.
However, the guidance does provide that an unfair labor practice charge alleging an unlawful proffer of a severance agreement may be subject to the Act’s six-month statute of limitations.
Applicability of Operations-Management Memo 07-27 to Non-Board Settlements.
The GC asserts that Operations-Management Memo 07-27 Non-Board Settlements (“OM 07-27”) remains in full force and effect and is consistent with the McLaren Macomb decision. Non-Board settlement agreements are direct settlements between the parties (employee/union and employer) of pending charges that must be approved by the NLRB Regional Director and/or General Counsel’s office to obtain withdrawal/dismissal of the pending charge. Typically, the Board is asked to approve the withdrawal of Board charges conditioned on parties complying with the terms of these “Non-Board” Settlements.
OM 07-27 provides that “confidentiality clauses that prohibit an employee from disclosing the financial terms of the settlement to anyone other than the person’s family, attorney and financial advisor are normally acceptable.” The GC confirmed this guidance is still applicable post-McLaren Macomb, reasoning that a provision requiring non-disclosure of financial terms in non-Board settlements “would not typically interfere with the exercise of Section 7 rights, and promotes quick resolution of labor disputes.” But employers should note this limited approval only applies to the financial terms of an agreement, and not the fact that the agreement exists or any other terms, and, again, seemingly only applies to settlements approved by the NLRB Region handling a pending charge. To be clear, in the context of the Memo “non-Board settlements” do not include agreements between employees and employers that do not involve the withdrawal of a pending Board charge and approval of the Region; such agreements seemingly cannot contain a confidentiality clause prohibiting disclosure of financial terms.
Applicability of McLaren Macomb to Other Employment Documents.
In her Memo, the GC extended the holdings in McLaren Macomb to all employer communications to employees, including pre-employment documents and offer letters. Thus, the Board could find any employment document, including policy updates and handbooks, to violate the Act if they include language similar to the language found unlawful by McLaren Macomb, or other language that the Board interprets as infringing on employees’ Section 7 rights.
The Impact of the McLaren Macomb Decision on Supervisors.
While the GC recognized that severance agreements for supervisors are not directly impacted by the McLaren Macomb decision, she did enumerate situations in which supervisors and their actions may be covered by the Act. Specifically, if a supervisor is facing an adverse employment action because they refused to commit an unfair labor practice against employees, the GC stated that it would be unlawful for an employer in this situation to proffer a severance agreement with overbroad confidentiality and/or non-disparagement provisions to that supervisor. The GC also explained that she would also consider it unlawful for an employer to retaliate against a supervisor who refuses to proffer a severance agreement to employees with provisions that violate the Act.
The Guidance Memo provided some, but not complete, clarification on the interpretation and impact of the McLaren Macomb decision. Employers and their counsel should conduct an individualized review of their employment documents that contain provisions identified by McLaren Macomb and the GC as being potentially violative of the Act to develop an appropriate response.