BFV Perspectives, | Apr 07, 2023

Severance Agreements Under Attack: 3 Key Takeaways From NLRB Memo 

Recently, the National Labor Relations Board (“NLRB”) issued a controversial decision in McLaren Macomb, ruling that employers violate the National Labor Relations Act (“NLRA”) when they include confidentiality and non-disparagement clauses in severance agreements. Specifically, the NLRB found the following clauses included in a severance agreement unlawful:

  • Confidentiality. 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 purpose 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.
  • Non-disparagement. 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 found that these specific clauses, although common in most severance agreements, are too broad and interfere with employees’ rights to engage in protected activity.  Significantly, the Board went on to hold that merely proposing these terms and conditions in a severance agreement violates the law – even if the employee does not sign the severance agreement.  In other words, under the McLaren decision, providing an employee with a severance agreement that includes such terms violates the NLRA.

The decision does not apply to supervisors or managerial employees as defined by the NLRA. According to Section 2(11) of the NLRA: The term “supervisor” means any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.

GC Issues Memo Clarifying Decision

In March, the NLRB General Counsel issued a Memo to provide guidance on the McLaren decision in response to inquiries from workers, employers, labor organizations, and the public.

The Memo used a FAQ format to offer responses to come of those inquiries. Here are some of the Memo’s main points:

  1. Severance agreements are not banned. Lawful severance agreements may continue to be offered, used and enforced if they do not have overly broad provisions that affect the rights of employees to engage with one another to improve their lot as employees.
  2. The McLaren applies retroactively. The Memo states that NLRB cases are presumed to be applied retroactively and the McLaren decision has retroactive application.  This means that confidentiality, non-disclosure and non-disparage clauses within agreements entered into prior to the McLaren decision may be invalid. The Memo states that that former employees are entitled to the same protections under the NLRA.
  3. Unlawful clauses do not invalidate the entire agreement.  The Memo recognizes that Regions generally make decisions based solely on the unlawful provisions and would seek to have those voided out as opposed to the entire agreement, regardless of whether there is a severability clause.
  4. Disclaimers may not be effective. The Memo clarifies that disclaimer provisions may be useful to resolve ambiguity over vague terms, but they would not necessarily cure overly broad provisions. The Memo references the General Counsel’s brief from another case recommending the NLRB: “should formulate a model prophylactic statement of rights, which affirmatively and specifically sets out employee statutory rights and explains that no [workplace] rule should be interpreted as restricting those rights.” If an employer prominently includes such a statement in their workplace policies, “the Board should apply a presumption that employees could not reasonably construe those rules to prohibit Section 7 activity.”  Such a disclaimer that references all of the rights under Section 7 would be impractical.
  5. Other clauses may be treated as problematic. The Memo states that other provisions often contained in severance agreements might interfere with employees’ exercise of Section 7 rights, such as:
    -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 Section 7, such as if the employee was asked to testify against co-workers that the employee assisted with filing a Unfair Labor Practice charge.
3 Key takeaways for employers

The McLaren decision and the GC Memo are scary stuff for employers.  Commonly used terms in severance agreements are now clearly under attack by the NLRB.  Although the GC Memo is not law, it may indicate what cases the NLRB will pursue, how the Board would rule on these issues, and what other types of clauses it may target next.

Against this backdrop, employers should take the following action:

#1 Audit severance agreements. Audit/review existing severance agreements and templates to determine if they include broad confidentiality, non-disclosure and non-disparagement clauses. Seek legal counsel to evaluate severance agreements and determine what clauses to include and what language to avoid or modify.

#2 Audit employee handbooks and policies. Audit/review employee handbooks and stand-alone policies that may include broad confidentiality, non-disclosure and non-disparagement clauses or other policies that may limit employees’ rights to engage in protected activity under Section 7 of the NLRA. Seek legal counsel to evaluate company policies and determine what policies may need to be revised.

#3 Audit noncompete agreements. Carefully audit/review non-competes and other restrictive covenants that may limit employees’ rights to engage in protected activity under Section 7 of the NLRA. This is especially true given that the FTC is also seeking to nullify non-competes.  Accordingly, employers should seek legal counsel when drafting restrictive covenants and before sending cease and desist letters to former employees who are violating covenants or the types of clauses found unlawful in McLaren.

As always, please let me know if I can help.

BFV Perspectives, | Apr 07, 2023
Daniel H. Park
Daniel H. Park

Work hard at work worth doing. This is what drives Daniel Park in every aspect of his life. At Berman Fink Van Horn, Daniel demonstrates this in everything he does.

Kenneth N. Winkler
Kenneth N. Winkler

Kenneth Winklera shareholder at Berman Fink Van Horn, helps employers navigate the employment laws and regulations that govern the workplace.