On February 21, 2023, the National Labor Relations Board (NRLB or the “Board”) issued a decision in Mclauren Macomb, 372 NLRB No. 58 (2023), holding that severance agreements that contain broad confidentiality and/or non-disparagement provisions violate Section 7 of the National Labor Relations Act (NLRA or the “Act”) because they tend “to interfere with, restrain or coerce employees’ exercise of the rights guaranteed in Section 7” of the Act. Section 7 of the NLRA guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” as well as the right “to refrain from any or all such activities.”
The impact of the Mclauren Macomb decision was far-reaching because many employers routinely include “standard” confidentiality and non-disparagement provisions in severance agreements and other employment agreements. In the aftermath of Mclauren Macomb, employers scrambled to find answers to unresolved questions. As a result, the NLRB General Counsel issued a Memorandum (GC-23-05) on March 22, 2023 to provide guidance on the decision and its implications, shedding some lights on these unanswered questions. Below are the takeaways from the Memorandum.
1. Severance agreements are not banned – as long as they are narrowly tailored.
Under Mclauren Macomb, an agreement is narrowly-tailored if it does not include overly broad provisions that interfere with Section 7 of the NLRA. For example, the Memorandum provides that confidentiality clauses that are narrowly-tailored to restrict the dissemination of proprietary or trade secrets for a limited period based on legitimate business reasons are acceptable. A narrowly-tailored non-disparagement provision would not prohibit employees from making public statements about the workplace as such statements are vital to the exercise of their Section 7 rights. Instead, a narrowly-tailored provision would limit the proscription to statements that are defamatory and maliciously untrue, such as statements that are made with knowledge of falsity or with reckless disregard for the truth or falsity of the statement. Provisions that have a chilling effect on employees’ Section 7 rights are unlawful.
The General Counsel confirmed that Memorandum OM 07-27 is consistent with Mclauren Macomb. Memorandum OM 07-27 addressed whether certain terms in “non-Board settlements” violate the NLRA. Non-Board settlements 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. 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.” However, “non-Board settlements” do not necessarily include agreements between employees and employers that do not involve the withdrawal of pending Board charges with approval of the NLRB. Commentators on GC-23-05 disagree on this point but a close reading of GC-23-05 and OM 07-27 does not appear to permit agreements other than those for “non-Board settlements” to contain a confidentiality clause prohibiting disclosure of financial terms.
2. Proffering the agreement is itself unlawful.
The General Counsel clarified that the totality of the circumstances are not a factor when determining whether a provision is facially unlawful because there are no legitimate interest that could justify interfering with Section 7 rights. Proffering such agreements, is itself unlawful.
Furthermore, even if an employee refuses to sign the agreement, the employer’s conduct (conditioning severance benefits on the waiver of statutory rights) is still unlawful. The conduct, not the validity of the agreement is determinative.
3. The decision applies retroactively – Employers are encouraged to right their wrongs.
The Memorandum provided that the Mclauren Macomb decision applies retroactively. Furthermore, although proffering an unlawful severance agreement is subject to a six-month statute of limitation, maintaining and enforcing a previously entered unlawful severance agreement would not be time-barred. The General Counsel thus encourages employers to remedy past violations by contacting former employees to inform them that certain provisions in their severance agreements are null and void, and would not be enforced. Such conduct could mitigate an employer’s liability.
4. Rights cannot be waived and unlawful provisions cannot be saved.
The protection afforded to employees under Mclauren Macomb cannot be waived. Thus, employers cannot claim that the broad provisions were negotiated with or requested by the employee. Furthermore, a “saving clause” or disclaimer will not cure an otherwise overbroad provision. Employers may still be liable for their conduct. However, the entire agreement will not be null and void, only the overbroad provisions.
5. Supervisors are afforded limited protections.
The NLRA does not protect supervisors. However, the Memorandum provided that a supervisor who refuses to extend an unlawful severance agreement to employees is protected from retaliation by his employer. Furthermore, the employer would be in violation of the NLRA if such employer proffers a severance agreement to said supervisor for refusing to extend the unlawful agreement.
6. Other employment related agreements and communications at risk.
The General Counsel concluded by stating that non-compete, no solicitation clauses, no poaching clauses, and liability releases and covenants not to sue that are broad may also impede employees’ Section 7 rights, and thus should also be narrowly-tailored as well. Furthermore, pre-employment offer letters that “tend to interfere with, restrain or coerce employees’ exercise of Section 7 rights would be unlawful if not narrowly tailored to address a special circumstance justifying the impingement on workers’ rights.”
The central tone in the Memorandum seems to be that the McLaren Macomb web will spread beyond confidentiality and non-disparagement provisions in severance agreements to include other employment agreements and facets of the employee-employer relationship. Although the Memorandum is not binding law, the General Counsel’s opinion will impact future enforcement and Board decisions. As such, employers must reassess their current severance agreements, as well as other employment agreements including separation and settlement agreements to ensure compliance with McLaren Macomb. Terms must be clear, narrowly tailored to ensure that they do not prohibit employees from exercising their rights under Section 7 of the NLRA.
For questions regarding the effect of this decision on your current practices, please contact a member of the KMK Law Labor & Employment team.
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