Time to Review Separation Agreements, Confidentiality Agreements, and Handbooks: Do Your Standard Provisions Now Violate the NLRA?

On March 22, 2023, the NLRB General Counsel, Jennifer A. Abruzzo, issued a Memorandum GC 23-05 outlining her guidance to the Regional Directors regarding the scope of the Board’s decision in McLaren Macomb, 372 NLRB No. 58 (Case 07–CA–26304).  While stating that severance agreements are not now “banned”, she said that they cannot include overly broad provisions which limit employees’ rights to engage with one another to “improve their lot as employees,” including the right to extend their efforts through accessing the Board, judicial, legislative, and administrative forums, the media and other third parties.  Returning to Obama-era enforcement and interpretation of the National Labor Relations Act, the General Counsel signaled the NLRB’s intent to expand scrutiny of such employer restrictions on employee rights to other workplace policies and agreements.

As reported in a prior NELGPC E-Alert, the National Labor Relations Board (NLRB) on February 21, 2023  issued its decision in McLaren Macomb, 372 NLRB No. 58 (Case 07–CA–26304) which overturned the Trump era NLRB precedent established in 2020 in Baylor University Medical Center and IGT d/b/a International Game Technology ruling.  The McLaren Macomb decision held that provisions in a severance agreement, including confidentiality and non-disparagement provisions, that have a “reasonable tendency” to interfere with, restrain, or coerce the exercise of employee rights under Section 7 of the NLRA are unlawful.  McLaren applies to all private sector workplaces, union or non-union, with respect to the protection of Section 7 rights of employees to “engage in mutual aid and protection.” Under McLaren,  “the mere proffer” of such provisions in a severance agreement violates the NLRA for both the separating employee and for those who remain working.  Further, the protections extend to former employees.

In McLaren Macomb, 11 nurses were terminated and given severance agreements that broadly prohibited disparagement of the hospital, their employer, and required the agreement to be kept confidential. In finding the severance agreement to be unlawful, the NLRB returned to its pre-Baylor test which questioned whether the employer engaged in conduct which, “may reasonably be said, tends to interfere with the free exercise of employee rights under the Act.”  The Baylor test, by contrast, had required the Board to show:  (1)  that the employer unlawfully dismissed the employee under the NLRA; and (2) that  employer animus towards the exercise of Section 7 rights was a relevant component of an allegation that provisions of a severance agreement violated Section 8(a)(1) of the Act.  The McLaren case found that the Baylor and IGT decisions offered no justification for the two-part test, nor for the “severely constricted view” of workers’ organizing rights.  In returning to pre-Baylor precedent, the NLRB stated that it was returning to “nearly a century of settled law” which held that workers cannot broadly waive their rights under the NLRA.  Under McLaren, merely presenting a severance agreement that includes language limiting an employee’s Section 7 rights, such as a confidentiality or non-disparagement clause,  is considered unlawful by the NLRB.  It is irrelevant whether the employee accepts the agreement.

The relevant provisions in the McLaren severance agreement were rather typical for severance and other confidentiality agreements.   The language found facially unlawful by the Board was:

“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.”

“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.”

By reverting to pre-Baylor precedent, however, merely offering a severance agreement including such terms will be construed by the Board as an unlawful act under the NLRA.

In the GC Memo issued on March 22, 2023,  outlining her guidance to the Regional Directors regarding the scope of the decision, the NLRB General Counsel stated that although severance agreements are not now “banned”, they cannot include overly broad provisions which limit employees’ rights to engage with one another to “improve their lot as employees,” including the right to extend their efforts through accessing the Board, judicial, legislative, and administrative forums, the media and other third parties.  The Memorandum, in question and answer format, advises that “narrowly-tailored” confidentiality clauses which restrict dissemination of proprietary or trade secrets may be considered lawful.   Further, she states that non-disparagement provisions may be found lawful, if narrowly tailored meeting the definition of “defamation” (that is, maliciously untrue, such that they are made with knowledge of their falsity or reckless disregard for their truth or falsity).   The GC also advises that savings clauses or disclaimers, such as the language she proposed in her Stericycle brief to the Board,  which affirmatively and specifically set out employee statutory rights may be useful in resolving ambiguity over vague terms, but would not cure overly broad provisions.   As a harbinger of more restrictions to come, the GC Memo warns that other provisions in severance agreements, as well as in other employment agreements and handbook policies, may also violate Section 7 rights, referencing non-compete clauses, no solicitation clauses, no poaching clauses, broad liability releases and covenants not to sue.

Until the courts weigh in on any challenges to McLaren or its scope, employers should examine language in their severance and other agreements to assess whether the language can “reasonably be said” to tend to interfere with Section 7 rights.  The GC Memo suggests that, to avoid an unfair labor practice, employers should advise employees who already signed agreements containing prohibited clauses that such provisions will not be enforced.  Employers should seek labor counsel to assess whether to delete such provisions, include disclaimers regarding no intent to interfere with Section 7 rights, or stay the course until the courts weigh in regarding impact of the NLRB’s invalidation of such language outside the scope of Section 7.  Employers also should consult with labor counsel to proactively review other workplace policies and handbook provisions under the new guidance, and revise as necessary.

The attorneys at NELGPC are available to assist employers with this assessment, and to recommend best practices to keep employers ahead of the curve.


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