In response to the recent sweeping NLRB decision that left employers scrambling to revise their standard severance agreements, the NLRB General Counsel, Jennifer Abruzzo, issued guidance on March 22, 2023, attempting to clarify employers’ many outstanding questions. The memorandum provides guidance on issues including: (a) the retroactive effect of the decision; (b) the application of the decision to supervisors; and (c) guidance on the kinds of severance agreement provisions that could violate the National Labor Relations Act (the “Act”). The guidance only highlights the many concerns employers have regarding the implications of the McLaren decision.
As reported in Crowell’s client alert last month, the NLRB issued a decision in McLaren Macomb, 372 NLRB No. 58 (2023), holding that employers may not offer employees severance agreements that contain what might otherwise be considered standard confidentiality or non-disparagement provisions because they arguably impinge upon rights provided under the Act. Ms. Abruzzo’s memorandum offers guidance on the decision’s scope and effect as follows.
- Severance agreements are not “banned.” First, Ms. Abruzzo confirms that employers can continue to offer and enforce lawful severance agreements, noting that prior Board decisions approved severance agreements where the releases waived “only the signing employee’s right to pursue employment claims and only as to claims arising as of the date of the agreement.”
- The Decision has Retroactive Application. The guidance clarified that McLaren applies to severance agreements signed before the February 21, 2023 decision. And, while there is typically a six-month statute of limitations to bring an unfair labor practice charge, Ms. Abruzzo takes the position that “maintaining and/or enforcing a previously-entered severance agreement with unlawful provisions that restrict the exercise of Section 7 rights” would constitute a continued violation of the Act, and therefore a claim brought outside of the six-month time frame would not be time barred. Further, if a severance agreement is found unlawful under this new standard, the employer may be required to notify its former employees that their severance agreements are no longer valid.
- The Decision’s Application to Supervisors. The guidance addressed whether this decision is applicable to supervisors, who generally are not protected by the Act. However, the Act does protect a supervisor who is retaliated against for refusing to act on their employer’s behalf in committing an unfair labor practice against employees. Accordingly, an employer, in these very limited circumstances, could potentially violate the Act by offering an unlawful severance agreement to a supervisory employee.
- Severability. The guidance confirms that, where severance agreement provisions are found to be unlawful, the NLRB would seek to have those provisions voided, as opposed to voiding the entire agreement, regardless of whether the agreement contains a severability clause.
- Application to Former Employees. As the McLaren holding already indicates, both employees and former employees are entitled to the same protections under the Act because, as Ms. Abruzzo explained, Section 7 rights are not limited to discussions with coworkers and do not depend on the existence of an employment relationship. Also, former employees have a right to provide the NLRB with evidence about their prior working conditions without employer interference.
- Lawful Confidentiality and Non-Disparagement Provisions. Ms. Abruzzo explains that confidentiality and non-disparagement provisions that are narrowly-tailored may be permissible in some instances. Such provisions are permissible so long as they do not have a chilling effect on Section 7 rights by potentially prohibiting employees from assisting others about workplace issues and/or from communicating with the Agency or other third-parties. The following clauses might be permissible:
- “Confidentiality clauses that are narrowly-tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications may be considered lawful.”
- “Confidentiality clauses that are narrowly-tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications may be considered lawful.”
- Disclaimers and Savings Provisions. Lastly, Ms. Abruzzo cautioned that the addition of disclaimers and savings clauses may not be sufficient to save an otherwise overbroad severance agreement.
The General Counsel’s memorandum ends by noting that in addition to the confidentiality and non-disparagement provisions addressed in McLaren, other provisions often found in severance agreements, such as non-assistance provisions, non-compete and non-solicitation provisions, covenants not to sue and broad liability releases all could be deemed unlawful if they restrict employees’ exercise of their Section 7 rights. For that reason, it is important for employers to very carefully review their current standard severance agreements to ensure they comply with the NLRB’s McLaren decision. While the guidance provides some clarification as to the reach of the McLaren decision, there are still many unanswered questions regarding its legal and practical implications. Crowell & Moring will continue to monitor these issues as they develop.
For further information, please contact:
Kris D. Meade, Partner, Crowell & Moring
kmeade@crowell.com
