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March 30th, 2023
National Labor Relations Board Provides Key Guidance on Severance Agreements
On March 22, 2023, the National Labor Relations Board (“NLRB” or the “Board”) released a memorandum providing employers of both unionized and private sector workplaces with important guidance about severance agreements that contain broad confidentiality and/or non-disparagement provisions (the "Memo"). The Memo answers many questions raised by the February NLRB McLaren Macomb decision, in which the NLRB had reversed its own prior precedent to rule that it was unlawful to offer severance agreements to non-supervisory employees that included broad-based confidentiality and/or non-disparagement provisions.
While the McLaren Macomb decision is subject to appeal and additional direction from courts, the Memo provides the NLRB General Counsel’s guidance to regional NLRB offices on how to respond to many of the questions that have arisen about implications stemming from the case. Here are seven key takeaways for employers.
1. Non-Disparagement and Confidentiality Clauses Are Not Banned, But Must Be Narrowly Tailored to be Lawful.
The Memo says that “lawful severance agreements may continue to be proffered, maintained, 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.” In other words, employers who choose to use non-disparagement or confidentiality provisions in agreements must make sure they are narrowly tailored, with the Board providing limited and non-exhaustive examples of properly narrowed clauses. Provisions that have a “chilling effect” precluding employees from communicating with the NLRB, unions, legal forums, and the media, remain likely to be unlawful. Language requiring that financial terms of the agreement be kept confidential is permissible, as are restrictions on statements that are “maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity.”
2. Additional Clauses and Agreements May Also Infringe on Employee Section Seven Rights.
The Memo also states that there are other agreements and other provisions in severance agreements that “might interfere” with employees’ exercise of their Section 7 rights, including: a) offer letters, b) non-compete clauses, c) no solicitation clauses, d) no poaching clauses, e) 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 f) cooperation requirements involving any current or future investigation or proceeding involving the employer as those agreements affect an employee’s Section 7 rights, such as being asked to testify against co-workers that the employee assisted with filing an unfair labor practice charge. Further, unlawful confidentiality provisions and/or non-disparagement provisions are unlawful no matter who requests their inclusion in a separation agreement—even if it is the employees themselves.
3. Under Certain Circumstances, Supervisory Employees Could Also Be Covered by the NLRA.
While supervisors are not generally protected under the NLRA, the Memo clarifies that the NLRA may under certain circumstances protect a supervisor who is retaliated against because of their refusal to act on the employer’s behalf in committing an unfair labor practice—for instance, a situation where an employer retaliates against a supervisor for refusing to proffer an unlawfully overbroad separation agreement.
4. A General Disclaimer/Savings Clause Will Likely Not Save Overbroad Provisions.
The Memo underscores that “savings clauses” or disclaimers are unlikely to cure overly broad provisions, even if they “may be useful to resolve ambiguity over vague terms.” Employers may still be liable for mixed or inconsistent messages employers provide to employees that could interfere with employees’ exercise of their Section 7 rights. While the Memo provided a “model prophylactic statement of rights” that would presumably be sufficient to cure overbroad provisions, such language is extremely detailed and may not be appropriate for all workplaces.
5. Unlawful Provisions Will Likely Not Invalidate the Remainder of the Severance Agreement.
The Memo confirmed that unlawfully broad non-disparagement and/or confidentiality provisions will not likely invalidate the entire severance agreement. Instead, the Board would seek to void only unlawful provisions.
6. Mitigation of Risk Via Voluntary Notices to Employees.
The Memo further suggested that employers might preemptively attempt to remedy violations by contacting employees with overbroad provisions to alert them that such provisions will not be enforced. In the event that a meritorious charge were to be filed, the Memo stated that such contact could potentially form the basis for consideration of a merit dismissal.
7. McLaren Macomb Applies Retroactively.
The Memo states that while an unlawful proffer of a severance agreement is subject to the six-month statute of limitation provided by the NLRA, “maintaining and/or enforcing a previously-entered severance agreement with unlawful provisions that restrict the exercise of Section 7 rights continues to be a violation and a charge alleging such beyond the Section 10(b) period would not be time-barred.”
While the Memo is not binding legal precedent, the views contained in it will likely influence investigative and enforcement actions within the NLRB. Employers should thus consider reviewing and updating their template agreements including severance agreements, offer letters, employment agreements and employee handbooks.
Employers should also continue to pay close attention to further developments from the NLRB that may extend the McLaren Macomb decision to other types of provisions such as non-competes and non-solicitations.
If you have questions about the new NLRB memo, or other employment law questions, please contact Wendy Stryker at (212) 705-4838 or firstname.lastname@example.org, or Regina Gerhardt at (212) 750-8835 or email@example.com, or any other member of the Frankfurt Kurnit Employment Compliance, Training & Litigation Group.
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