Updated March 28, 2023
On March 22, 2023, National Labor Relations Board (“NLRB” or the “Board”) General Counsel Jennifer Abruzzo issued a memorandum to the NLRB’s regional directors and officers on how to interpret the recent McLaren Macomb Board decision regarding confidentiality and non-disparagement clauses in employee separation agreements (the “Interpretation Memorandum”). This blog post has been updated to include discussion of that memorandum.
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On February 21, 2023, the NLRB overturned two of its recent decisions to hold that employers may violate the National Labor Relations Act (“NLRA”) if they condition a severance agreement on an employee’s acceptance of confidentiality or non-disparagement restrictions that interfere with the employees’ rights under the NLRA, regardless of the surrounding circumstances in which the agreement was presented to the employee. The decision returns the analysis of severance agreements under the NLRA to a pre-2020 test that focuses on the language of the restrictions within a severance agreement itself.
The McLaren Macomb Decision
In McLaren Macomb and Local 40 RN Staff Council Office, and Professional Employees, International Union (OPEIU), AFL-CIO (“McLaren Macomb”), the NLRB held in a 4-1 decision that a severance agreement proffered to 11 permanently furloughed employees containing non-disparagement and confidentiality provisions violated Section 8(a)(1) of the NLRA. In so doing, the Board expressly overruled its 2020 decisions in both Baylor University Medical Center (“Baylor”) and IGT d/b/a International Game Technology (“IGT”), which were Trump-era decisions reversing the then-longstanding framework for analyzing such restraints. The McLaren Macomb decision therefore returns the NLRB to the approach it followed prior to Baylor and IGT, which focuses on whether the provisions of a severance agreement unlawfully restrict an employee’s rights under the NLRA.
Section 7 of the NLRA affords employees “the right to … engage in … concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Section 8(a)(1) of the Act makes it an “unfair labor practice for an employer to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed” by Section 7.
Prior to Baylor and IGT, the Board looked to the “language of the severance agreement to determine whether proffering the agreement had a reasonable tendency to interfere with, restrain, or coerce employees’ exercise of their Section 7 rights.” In the Board’s words, “What mattered was whether the agreement, on its face, restricted the exercise of statutory rights.”
That changed in 2020, when the Board issued its decisions in Baylor and IGT. In Baylor, the Board shifted its focus to consider the circumstances under which a severance agreement was presented to employees, rather than an independent examination of the text of the agreement. In that case, the Board held that a proffer of a severance agreement containing confidentiality, non-assistance, and non-disparagement provisions would not interfere with NLRA rights to the extent that signing the agreement is not mandatory, the restrictions applied to post-employment activities, and the employee was lawfully separated from employment and otherwise did not allege an unfair labor practice. The effect of this decision, according to the McLaren Macomb Board, was that “absent” a wrongful discharge or other unfair, discriminatory labor practice or coercive circumstances, “an employer is entirely free to proffer any provision, even a facially unlawful one.” The Board took a similar approach in IGT several months after issuing its decision in Baylor.
In McLaren Macomb, a Michigan hospital permanently furloughed 11 service employees deemed to be nonessential under certain COVID-19-related government regulations. It presented those employees with a “Severance Agreement, Waiver and Release,” which, among other things, included confidentiality and non-disclosure provisions with no carve-out for engaging in protected activity. The “Confidentiality” provision provided that the employee “acknowledges that the terms of the [severance agreement] are confidential and agrees not to disclose them to any third person,” except to a spouse or as necessary to legal or tax advisors or pursuant to a legal or administrative order. The “Non-Disclosure” provision provided that the employee “promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature” known to the employee due to employment. It also provided non-disparagement terms requiring that the employee “agrees not to make statements to [Respondent’s] employees or to the general public which could disparage or harm the image of [Respondent], its parent and affiliated entities and their officers, directors, employees, agents and representatives.” Finally, the severance agreement provided the employer with the right to pursue, in the Board’s words, “substantial monetary and injunctive sanctions” should an employee violate the severance agreement.
In an administrative proceeding decided on August 31, 2021, an Administrative Law Judge, in accordance with Baylor and IGT, held that the proffering of, and the severance agreement itself, did not violate Section 8(a)(1) of the NLRA.
On appeal, the Board expressly overruled Baylor and IGT, “return[ing] to the prior, well-established principle that a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights, and that employers’ proffer of such agreements to employees is unlawful.” According to the Board, Baylor was decided wrongly and without justification, “abandoned examination and analysis of the severance agreement issue,” and instead “shifted focus … to the circumstances under which the agreement was presented to employees,” which created, according to the Board, a two-factor analysis for assessing whether a severance agreement violates Section 8(a)(1). The Board found that the reasoning in Baylor was flawed because, among other things, the “potential chilling effect of an unlawful severance agreement on the exercise of Section 7 rights” may exist even if there are no other unfair, discriminatory or coercive circumstances. Thus, the Baylor standard “does nothing to protect employees confronted with patently coercive severance agreements, if their employer has not otherwise violated the [NLRA].” The Board further reasoned that an employer’s motive is irrelevant to Section 8(a)(1)’s “test of interference, restraint, and coercion,” and accordingly was improperly considered by the Baylor Board. Similarly, the Board found that whether the proscriptions concerned post-employment activities was of no moment and former employees were protected by the NLRA.
Specifically, the Board found that the non-disparagement provision served as a “comprehensive ban” overbroad in the types of statements proscribed, the entities and individuals to which it applied, and its indefinite time frame—all resulting in a chilling effect on Section 7 activity. With respect to the confidentiality provision, the Board likewise found that prohibition on disclosing the terms or existence of the agreement “to any third person” “would reasonably tend to coerce” an employee from filing a charge or assisting the Board with an investigation, thus resulting in an impermissible chilling effect on Section 7 activity of all employees because it bars an employee “from providing information to the Board concerning the Respondent’s unlawful interference with other employees’ statutory rights.” In addition, it found that the proffer of the agreement violated Section 8(a)(1) because it conditioned the receipt of severance benefits on the employee’s acceptance of the agreement’s terms and resulting forfeiture of statutory rights—it mattered not whether the employee accepted the agreement. The Interpretation Memorandum subsequently confirmed 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.” Further, to the extent the Board were to determine such a provision was unlawful, the NLRB would generally “seek to have those voided out as opposed to the entire agreement, regardless of whether there is a severability clause or not.”
The McLaren Macomb decision, which, like the NLRA, is applicable to employers outside of the union context, provides an opportunity for employers to review their severance agreement templates for compliance with the NRLB’s current view of Sections 7 and 8(a)(1). It is notable that both unionized and non-unionized employees are protected by Sections 7 and 8(a)(1) of the NLRA. As a result, employers should consider whether the language of their severance agreements impermissibly restricts employees from discussing the terms and conditions of their employment, filing unfair labor charges with the Board, assisting other employees in doing so, participating in the Board’s investigative process, or otherwise engaging in protected activity.
Employers seeking to include confidentiality and non-disparagement clauses in severance agreements should consider, among other things, including explicit carve-outs for communications and activities protected by the NLRA. For example, an employer might include language at the end of each such clause stating that nothing in the preceding sentence(s) or in the agreement generally is intended to restrict the employee from exercising his or her rights under Section 7 of the NRLA. Additionally, an employer may consider including a standalone provision stating that the employee agrees and acknowledges that nothing in the agreement restricts the employee’s exercise of rights protected by Sections 7 and 8(a)(1) of the NLRA. The Interpretation Memorandum confirms that such provisions “may be useful to resolve ambiguity over vague terms,” but may not cure “any mixed or inconsistent messages provided to employees that could impede the exercise of Section 7 rights.” The Interpretation Memorandum provides additional guidance not discussed herein, and employers may want to seek advice about the applicability of that guidance to their employment-related agreements.