Loyola University Chicago School of Law, JD 2024
In McLaren Macomb, 372 NLRB No. 58, the National Labor Relations Board (NLRB) changed the validity and enforcement of confidentiality and non-disparagement clauses in severance agreements when it held that employers may no longer proffer language that infringes upon Section 7 National Labor Relations Act (NLRA) rights. Specifically, employers may no longer include provisional language that prevents an employee from exercising their Section 7 rights, including the ability to make disparaging comments about the employer following termination. This decision, further (un)clarified by Memorandum GC 23-05, has far-reaching implications. Not only does it affect all previous severance agreements due to its retroactive applicability, but the decision also represents a shift in the NLRB’s enforcement activity that extends far beyond the current decision.
McLaren Macomb’s changes to non-disparagement clauses in severance agreements
Maclaren Macomb is a teaching hospital based in Michigan that was severely impacted by COVID-19 restrictions on outpatient and elective procedures. In response to the reduction in income, the hospital furloughed eleven employees, all of whom were members of the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO). The employees upon termination signed a severance agreement that contained two relevant provisions – a confidentiality agreement and non-disclosure clause. The confidentiality clause stated that “The Employee . . . agrees not to disclose [the terms of the agreement] to any third person . . . .” while the non-disclosure clause required the employee to “agree not to make statements to the Employer’s employees or to the general public which could disparage or harm the image of the Employer . . . .”
Under previous NLRB decisions, these clauses would be permissible. Both Baylor and IGT emphasized that there must be some form of animus or coerciveness independent of overly broad severance agreement language in order to constitute a violation. Now, the mere proffering of a severance agreement with language restricting Section 7 rights is invalid, as “the absence of such conduct [i.e., coercion, other unlawful act] . . . cannot eliminate the potential chilling effect of an unlawful severance agreement.”
Section 7 of the NLRA (codified at 29 U.S.C. § 157) gives employees the right to engage or refrain from: self-organization; forming, joining, or assisting labor organizations; collectively bargain; and engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection. The non-disparagement clause in McLaren violated Section 7 rights as it was overly broad. It encompassed any labor dispute or condition of employment, and applied to all the employer’s affiliated entities and employees. A similar reasoning applied to the confidentiality agreement — the clause prohibited the disclosure of the agreement to any third person, even encompassing the union and its representatives.
GC memo outlines the agencies increased focus on Section 7 NLRA rights
What followed McLaren was a wake of confusion. Some employers were concerned that severance agreements as a whole were now impermissible, and the decision left little guidance as to what language was an acceptable substitute. In addition, many were concerned about the scope of the decision, and whether it affected severance agreements entered into prior to McLaren. The NLRB attempted to answer some of these remaining questions in a memo penned by general counsel (GC) Jennifer Abruzzo.
In this memo, the GC clarified that severance agreements are not banned, but that any overly broad agreement that infringes upon Section 7 rights is subject to scrutiny. In addition, the GC clarified that the decision has retroactive effect, meaning that any severance agreement entered into prior to February 21, 2023 (excluding statue of limitations issues) with overly broad language could be considered a violation. Abruzzo suggested contacting previous employees who signed severance agreements with overly broad provisions and notifying them that the sections are null and void, which would serve as a basis for merit dismissal.
The decision leaves more questions than answers
It is unclear on what legal basis the GC can retroactively apply the McLaren decision to all previous severance agreements. The GC stated that “board cases are presumed to be applied retroactively . . .” but stated no legal basis to support her proposition. This statement could ultimately doom the validity of McLaren in its entirety. Not only does it raise serious Due Process concerns, but one of the fundamental canons of administrative law is that adjudications can be used as precedent but are not “rules” in the sense that they must be obeyed by the public as a whole. See NLRB v. Wyman Gordon.
Given the questionable legal validity of the GC’s statements and the impending legal challenges to the decision, employers should hesitate before implementing the sweeping requirements that Abruzzo suggested. Instead, more conservative measures may suffice to protect an employer’s interests. These could include supplementing present confidentiality and non-disparagement clauses with disclaimers (ex. “these provisions are not intended to restrict an employee (or former employee) from exercising their Section 7 rights under the NLRA, including filing a Charge with or speaking to the NLRB.”), adding “savings clauses” (which would serve to enforce the remainder of an agreement) and narrowly tailoring non-disparagement clauses to permissible purposes, like bans on defamation, may be successful.
At the end of the memo, Abruzzo suggests that a number of other provisions may interfere with Section 7 rights. These include non-compete clauses (aligning the NLRB with the FTC’s recent proposal to ban non-competes), no solicitation clauses, no poaching clauses, broad liability releases and covenants not to sue that go beyond employment claims, and cooperation requirements involving employers (as that effect’s an employee’s right to refrain under Section 7). This ‘innocuous’ language thrown at the end of the memo is in fact a signal that the NLRB is ramping up its enforcement activity. Employers can expect a stronger stance by the NLRB on Section 7 rights and must be cautious in assessing their potential exposure.