New NLRB Guidance Sheds Light on McLaren Decision and Severance Agreements

National Labor Relations Board (NLRB or the Board) General Counsel (GC) Jennifer Abruzzo issued guidance on the Board’s recent decision regarding severance agreements. In McLaren Macomb, 372 NLRB No. 58, the Board found that confidentiality and nondisparagement restrictions in severance agreements violated the National Labor Relations Act (NLRA). The GC’s March 22, 2023 guidance, contained in GC Memorandum 23-05 (GC Memo), addresses many questions raised by the decision.

Permissible Confidentiality and Nondisparagement Restrictions

Confidentiality Provisions

The GC Memo confirms that confidentiality clauses that are narrowly tailored to restrict the dissemination of proprietary or trade secret information are permissible, but the GC notes that to be lawful these limitations must be for a limited period and based on legitimate business justifications. The GC also clarified that language requiring that the financial terms of the agreement be kept confidential would also be permissible, a position that is consistent with longstanding Board practice but was called into question under the McLaren holding.

Nondisparagement Restrictions

While general nondisparagement bans are unlawful, the GC Memo explains that it is permissible to restrict employee statements that are “maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity.”

Retroactivity

The GC Memo confirms that the decision will be applied retroactively, meaning agreements proffered to employees prior to the February 21, 2023 decision may be subject to challenge. The NLRA has a six-month statute of limitations, which the GC Memo says will allow claims up to six months after unlawful proffers of agreements.

It is the GC’s position, however, that charges challenging executed or signed agreements containing unlawful provisions will never be time-barred if they contain no expiration date. In GC Abruzzo’s view, these claims are based on employers’ unlawful maintenance or enforcement of these existing agreements.

Scope of Remedy/Severability

One of the important questions left unaddressed by the McLaren decision was whether the NLRB would invalidate an entire agreement based on offending confidentiality or nondisparagement provisions or simply require recission of those provisions. Although the GC Memo does not commit to a singular approach, it points out that the typical practice in the NLRB’s regional offices has been to invalidate only the unlawful provisions regardless of whether there is a severability clause.

McLaren Not Limited to Severance Agreements

The GC Memo, as expected, clarifies that enforcement of the McLaren decision will not be limited to severance agreements. The GC views the restrictions as applying to “any employer communication” that unnecessarily infringes on employee rights. This includes, for example, preemployment or offer letters.

Significantly, the GC noted her intention to expand the scope of the Board’s ruling beyond confidentiality, nondisclosure, and nondisparagement provisions in severance and other agreements to impact more provisions that might interfere with Section 7 rights.

The provisions that could interfere with Section 7 rights include

• noncompete clauses,
• nonsolicitation clauses,
• no-poaching clauses,
• broad liability releases and covenants not to sue that 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 Section 7, such as if the employee were asked to testify against co-workers that the employee assisted with filing an unfair labor practice (ULP) charge.[1]

Supervisors

Supervisors are not covered by the NLRA, and the GC Memo confirms that the McLaren decision is not applicable to agreements or employee communications strictly for supervisors. However, the GC believes that there are circumstances under which a supervisor may nonetheless have protection. For example, if a supervisor refuses an instruction to engage in an unfair labor practice, the supervisor could be protected.

In the GC’s view, it also would be a violation to retaliate against a supervisor who refuses to proffer an unlawful agreement as well as a violation to proffer a severance agreement to a supervisor as related to such retaliation or unlawful conduct.

Savings Clauses and Disclaimers

The GC Memo states that “specific savings clause or disclaimer language may be useful to resolve ambiguity over vague terms.” However, the GC says that such savings clauses or disclaimers will not be enough to cure overly broad restrictions, including those that send “mixed or inconsistent messages.” Additionally, the GC cited “model prophylactic statement of rights” language that presumably would be sufficient to cure overly broad provisions, but the model language is extremely detailed and describes employee rights to engage in

(1) organizing a union to negotiate with their employer concerning their wages, hours, and other terms and conditions of employment; (2) forming, joining, or assisting a union, such as by sharing employee contact information; (3) 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 nonwork areas, such as parking lots or break rooms; (4) discussing wages and other working conditions with co-workers or a union; (5) 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; (6) striking and picketing, depending on its purpose and means; (7) 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; (8) wearing union hats, buttons, t-shirts, and pins in the workplace, except under special circumstances; and (9) choosing not to engage in any of these activities. [2]

Employers will need to consider the pros and cons of including such detailed language as compared to a more streamlined disclaimer, or no disclaimer at all, given the agreement’s language and the employer’s risk tolerance.

Voluntary Notices to Employees and Risk Mitigation

The GC Memo suggests that employers may preemptively attempt to remedy violations by advising employees that overly broad provisions in their existing or proffered agreements are null and void and will not be enforced, including advising that no penalties, monetary or otherwise, for breaches will be sought.

According to the GC, such preemptive conduct could form the basis for a merit dismissal if a meritorious charge solely alleging an unlawful proffer is filed, although the GC does not commit to such employer conduct curing a technical violation in every case.

GC 23-05: Takeaways for Employers

The memo makes clear that the GC intends to closely review the language of any employee communications, including severance agreements, to determine whether the communications facially restrict employees’ NLRA rights. There is no need for actual or as-applied restrictions on employee conduct to trigger an unfair labor practice.

In addition to the guidance contained in our February 23, 2023 LawFlash, employers should consider the following:

• As we have previously advised, employers should review and update their template agreements to mitigate or eliminate labor law risk. This includes not only severance agreements, but also any separation or settlement agreements and other employment documents (e.g., offer letters, handbooks, employment agreements).
• Employers should consider whether to take the preemptive remedial action of notifying prior recipients of agreements that overbroad confidentiality and nondisparagement restrictions will not be enforced. Whether to do so will be based on the specific circumstances of each employer’s situation and a risk/reward assessment.
• Employers should continue to monitor developments in connection with the GC’s expansion of the McLaren decision to other types of provisions, such as noncompetes, nonsolicitation clauses, and no-poaching clauses.

How We Can Help

When drafting these agreements, employers should consult with a capable labor relations lawyer. Morgan Lewis has experience working with employers, both those with unionized workforces and those that are nonunion, to draft these types of agreements with consideration for the NLRA and other applicable laws.