Executive Summary: As discussed in our February 23, 2023 Legal Alert, the National Labor Relations Board (NLRB or Board) recently held in McLaren Macomb, 372 NLRB No. 58, that an employer violates Section 8(a)(1) of the National Labor Relations Act (NLRA) by merely proffering severance agreements containing overly broad non-disparagement and confidentiality of agreement clauses to permanently furloughed bargaining unit employees. The Board held that such clauses which are so broadly worded that they interfere with employees’ Section 7 rights to, among other things, assist co-workers or former co-workers with workplace issues and communicate with others about their employment, violate Section 8(a)(1).
Since the decision came down, legal and professional communities alike have been inundated with inquiries from workers, employers, labor organizations, and the public about the implications of the case––so much so that on Wednesday, March 22, NLRB General Counsel, Jennifer Abruzzo, issued Memorandum GC 23-05 (GC Memo 23-05) purporting to assist NLRB regional offices in responding to these inquiries.
However, as outlined below, GC Memo 23-05 takes an expansive view of the McLaren Macomb decision’s analysis while providing little guidance.
What We Know: Despite the limitations of GC Memo 23-05, there are some takeaways:
- Severance agreements are not banned.
- Entire agreements will not be rendered void - only provision(s) found unlawfully broad.
- An employee’s refusal to sign a severance agreement has no bearing on whether the provisions of the agreement are lawful.
- While supervisors are generally not protected by the NLRA, the current Board believes there are two instances in which a supervisor may be protected: 1) retaliation against a supervisor who refuses to proffer an unlawfully overbroad severance agreement; and 2) presenting a supervisor with a severance agreement that prevents him or her from participating in a Board proceeding.
- Confidentiality provisions protecting confidential and proprietary business information and trade secrets may be lawful.
Additionally, we can expect that, at least under McLaren Macomb precedent, any of the following language in confidentiality of agreement and non-disparagement provisions may be found by the Board to be a violation of the NLRA:
- Provisions with no temporal limitations, but apply to “at all times hereafter.”
- Provisions with no definitions, especially of terms such as “disparage” and “harm.”
- Provisions that restrict disclosures regarding wages, hours, and terms and conditions of employment to “any third party.”
- Provisions that define the employer too broadly, such as including “its parents and affiliated entities and their officers, directors, employees, agents and representatives;” and
- Provisions that restrict an employee’s ability to speak directly to co-workers, union representatives, or Board members.
What Remains to Be Seen: Notwithstanding Abruzzo’s attempt to address the implications of McLaren Macomb, there is much that remains unclear.
First, GC Memo 23-05 states that clauses that are “narrowly tailored” will be found lawful, but neither McLaren Macomb nor GC Memo 23-05 specifically addresses or defines what would be considered “narrowly tailored.”
Second, the McLaren Macomb decision involves a specific set of facts––severance agreements offered to employees who had been separated. The Board in McLaren Macomb pointed out the vulnerable condition such employees are in to accept the terms offered by an employer. It remains to be seen how the rationale and findings will be applied to a distinct set of facts such as post-employment attorney demand letters, administrative proceedings, or settlement of litigation. Although the NLRB stated its holding applies to former employees, there is an argument that a post-employment knowing and voluntary waiver, where the employee is represented, may be interpreted by courts as outside the scope of this decision.
Third, the retroactive effect the decision has on prior settlement agreements remains unclear. Specifically, and notwithstanding the fact that GC Memo 23-05 expansively interprets the decision to apply retroactively, it does so by reversing two other decisions upon which employers relied. It is not clear that a court would agree that McLaren Macomb should have retroactive application. Nonetheless, employers should exercise caution in determining whether to enforce provisions in prior settlement agreements that the NLRB now has determined are unlawful.
Finally, apart from being found a general violation of the NLRA and potentially void, both the McLaren Macomb decision and GC Memo 23-05 are silent on what penalties employers may face if the NLRB finds certain provisions of their agreements unlawful. The remedy might be limited to expungement of the unlawful provisions, an agreement not to use them again, and posting a notice that the employer will not interfere with employees’ Section 7 rights.
Employers’ Bottom Line: As is often the case with changes in the law, it will take time for issues to be clarified and resolved by the NLRB and courts.
But in the meantime, we would recommend you 1) consult with experienced counsel; 2) conduct a cost-risk analysis; 3) analyze your current agreements and consider revising to narrow the language with some of the suggested options herein; and 4) ensure your agreements have strong severability clauses.
If you have any questions regarding the issues addressed in this Alert, please contact the authors, Rick Warren, partner in our Atlanta office at rwarren@fordharrison.com, and Mollie Wildmann, an attorney in our Memphis office at mwildmann@fordharrison.com. Of course you can also contact the FordHarrison attorney with whom you usually work.
On Tuesday, April 4, FordHarrison is hosting a complimentary webinar, “NLRB’s Recent Attack on Separation Agreements – What Are Employers to Do?” which will address issues raised by GC Memo 23-05 and McLaren Macomb. To register for this webinar, click here.