New Guidance for Employers on Severance/Separation Agreements

The National Labor Relations Board’s recent McLaren Macomb decision, discussed here, regarding the lawfulness of confidentiality and non-disparagement provisions in severance agreements, left several unanswered questions.  NLRB General Counsel Jennifer Abruzzo has now issued a memorandum providing guidance on many of those questions.  The General Counsel is the chief prosecutor of National Labor Relations Act (NLRA) violations so her guidance, though not legally binding, is a highly instructive indicator for employers.  The following is a summary of the key points contained in General Counsel Abruzzo’s memorandum.

Scope of McLaren Macomb

The holding of McLaren Macomb is not limited to severance agreements.  The General Counsel’s position is that it would apply to “any employer communication” with employees, including pre-employment or offer letters, as well as separation or settlement agreements, which contain “overly broad provisions . . . that tend to interfere with, restrain or coerce employees’ exercise of Section 7 rights[.]”

Confidentiality of Financial Severance/Separation/Settlement Terms

It is permissible to require non-disclosure of the financial terms of a severance agreement.  Conventional language prohibiting the employee from disclosing the financial terms of the agreement to anyone other than the employee’s family members, financial advisors and lawyers would not violate the NLRA. 

Retroactive Application

The General Counsel is taking the position that McLaren Macomb does apply retroactively to agreements already in place.  Thus, existing agreements containing confidentiality and non-disparagement provisions that are unlawful under McLaren Macomb do constitute violations of the NLRA.  The General Counsel suggests “employers should consider remedying such violations now by contacting employees subject to severance agreements with overly broad provisions and advising them that the provisions are null and void and that they will not seek to enforce the agreements or pursue any penalties, monetary or otherwise, for breaches of those unlawful provisions.”

Severability/Savings Clauses

As a general matter, and subject to the particular facts and circumstances of a given case, the General Counsel will not seek to hold an entire agreement null and void based on a single overbroad provision, regardless of whether the agreement contains a severability clause. Rather, the General Counsel will seek to void the unlawfully overbroad provision(s).

Narrowly-Tailored Non-Disparagement Provisions

As anticipated, it appears that McLaren Macomb puts an end to conventional non-disparagement clauses that broadly prohibit all negative statements about the employer.  The General Counsel explained that a lawful “narrowly-tailored” non-disparagement provision is one that is limited to employee statements about the employer that meet the definition of defamation.  The definition of defamation that the NLRB generally follows is a statement that is maliciously untrue, such that the statement was made with knowledge of its falsity or with reckless disregard of its truth or falsity.   

General Disclaimers

A general disclaimer – e.g., “nothing in this Agreement shall be construed as interfering with Employee’s Section 7 rights under the NLRA” – is most likely not sufficient to cure an overbroad confidentiality or non-disparagement provision.  The General Counsel observed that such disclaimers could be useful to resolve ambiguity over vague terms, but would not necessarily cure overbroad provisions.  Accordingly, employers should not assume that a general disclaimer would be sufficient to insulate otherwise unlawfully overbroad provisions.  The General Counsel noted that she has asked the NLRB, in a pending case (called Stericycle), to issue a ruling on her proposed model “prophylactic” disclaimer for employers to use in employee handbooks and, presumably, severance agreements as well. That proposed model disclaimer is much lengthier and more detailed than the typical general disclaimer.  We are monitoring the Stericycle case and will report on any notable developments.

These are the key practical takeaways from the General Counsel’s memo, although the memo does contain additional guidance about other aspects of McLaren Macomb that might be of interest to employers.  Of additional concern for employers is the General Counsel’s inclusion of her view that a host of other common contractual provisions could also unlawfully interfere with employees’ Section 7 rights, including: 

• 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;
• cooperation requirements involving any current or future investigation or proceeding involving the employer.

Employers can now revisit their agreements in light of this new guidance from the General Counsel about confidentiality and non-disparagement provisions, and determine whether their standard forms require modification and/or whether action should be taken with respect to existing agreements.  In addition, employers may consider reviewing and revising other provisions in their agreements for potential NLRA issues based on the General Counsel’s stated view that many common contractual provisions also could violate the NLRA.