On March 22, the National Labor Relations Board’s General Counsel (GC) issued a memorandum addressing many of the questions that employers were left asking themselves following the Board’s decision in McLaren Macomb, 372 NLRB No. 58 (2023). Our firm recently published a blog detailing that decision and its implications for employers, both union and non-union. A link to that blog post can be found here. A brief review of the McLaren decision will be helpful for purposes of the GC’s memorandum guidance below.
In McLaren, a unionized Michigan hospital permanently furloughed 11 employees in response to the COVID-19 pandemic. Each of the 11 employees were presented with a severance agreement and general release, and the severance agreement contained the following two provisions which the NLRB took issue with:
Confidentiality Agreement. The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.
Non-Disclosure. At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee’s employment. At all times hereafter, the Employee agrees not to make statements to Employer’s employees or to the general public which could disparage or harm the image of Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.
The NLRB concluded that the confidentiality and non-disclosure provisions in the severance agreement interfered with, restrained, and/or coerced the furloughed employees’ exercise of their rights under the National Labor Relations Act (Act). The NLRB further concluded that because the agreement conditioned the receipt of severance benefits on the employees’ acceptance of those unlawful provisions in the severance agreement, the employer’s proffer of the severance agreement to the furloughed employees violated Section 8 of the Act. In so concluding, the NLRB adopted a new rule: where a severance agreement unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights, the “mere proffer” of the severance agreement violates the Act.
Below are some of the more pressing issues the GC addresses in her memorandum:
Severance agreements, generally, are not banned.
The practice of proffering severance agreements, generally, is not unlawful. It is only where the proffer of those severance agreements containing overly broad provisions that infringe on employees’ rights to “engage with one another to improve their lot as employees” will the employer’s conduct of proffering be found unlawful.
It does not matter whether the employee signed the severance agreement or not.
The GC essentially restated the McLaren rule in her guidance as to this issue: the focus is on the “mere proffer” of the agreement itself. In other words, the employee not signing the agreement does not make the employer’s conduct of proffering an agreement with overly broad provisions lawful.
The new rule applies retroactively.
Perhaps the most important piece of guidance issued by the GC is that the new rule applies retroactively. This means that the unlawful proffer of a severance agreement with overly broad confidentiality and non-disparagement provisions will be subject to a 6-month statute of limitation as set forth in the Act.
Additionally, the GC also stated that “maintaining and/or enforcing previously entered severance agreements” with unlawful provisions would continue to be a violation and would not be time-barred. This means that, regardless of how long ago the employer and employee entered into the agreement, the employer will be in violation of the new rule if it continues to enforce the otherwise overly broad confidentiality and non-disparagement provisions within that agreement.
The remedy for a violation under the new rule will likely be invalidation of only the unlawful provisions of an agreement.
The GC stated that the usual practice in NLRB regional offices has been to invalidate only the unlawful provisions of an agreement, not the entire agreement.
A general disclaimer or “savings clause” will likely not save you.
The NLRB has previously stated, in multiple contexts, that general disclaimer or “savings clauses” will not save an otherwise overbroad confidentiality or non-disparagement provision. According to the GC, a general disclaimer and “savings clause” does not go far enough. In order to have effect, any disclaimer/savings clause would need to identify the specific type of Section7-related conduct in which the employee is not precluded from engaging in. The GC includes examples of this type of conduct in her memorandum.
Confidentiality and Non-disparagement provisions can still be lawful.
According to the GC, confidentiality clauses that are “narrowly tailored to restrict dissemination of proprietary or trade secrets information” and which also have “legitimate business justifications” are still lawful. Under this new rule, confidentiality provisions are unlawful if they have a “chilling effect” that restricts employees from assisting others with workplace issues or from communication with a union or other third parties. Note, the language in the confidentiality provision in McLaren restricted the furloughed employees’ access to “any third person” and the “general public.”
As for non-disparagement provisions, these provisions are lawful only if they are “narrowly tailored” and “justified” to prohibit employees’ statements that are “maliciously untrue” and made with “knowledge of their falsity or with reckless disregard for their truth or falsity.” In effect, non-disparagement provisions are lawful so long as the statements sought to be prohibited are employee statements that rise to the level of defamation. Where an agreement contains a non-disparagement provision that seeks to prohibit employee statements regarding all disputes, terms and conditions with no temporal limitation and with application to parent companies and affiliates and their representatives, the non-disparagement provision will be overly broad and in violation of the new rule under McLaren.
The new rule is not limited to severance agreements.
The GC states that this new rule and its restrictions will apply to “any employer communication” that unnecessarily infringes on employee rights. This includes offer letters, for example. The GC also indicated that the new rule would likely extend to the following provisions within an agreement:
- 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; and
- Cooperation requirements involving any current or future investigation or proceeding involving the employer as that affects an employee’s right to refrain under the Act.
The entire GC memorandum can be found here. We are closely following this decision and any related matters. Should you have any questions about these developments, please feel free to contact any of our Employment and Labor Attorneys.