The McLaren Macomb Decision
In McLaren Macomb, the Board held that overly broad non-disparagement and confidentiality provisions included in severance agreements offered to certain employees violated Section 8(a)(1) of the NLRA. The Decision, issued February 21, 2023, overturned two Board rulings from 2020, which generally took the position that such provisions did not violate the Act. For a detailed analysis of the Decision, please see our recent post.
McLaren Macomb left open a number of questions regarding its scope and application, which the GC’s memorandum seeks to clarify. Notably, the GC’s memorandum does not create law but rather serves as policy guidance and the GC’s enforcement position and is an indication of how the Board will interpret the Decision.
Key takeaways from the GC’s memorandum
The Decision applies retroactively. The GC states that the Decision applies retroactively to agreements entered into before McLaren Macomb. Moreover, “maintaining and/or enforcing a previously-entered severance agreement with unlawful provisions” will be treated as a continual violation, such that an unlawful labor practice charge would not be time-barred under the six-month statute of limitation language under Section 10(b). The GC suggests that employers should consider proactively reaching out to former employees who signed severance agreements to inform them that the employer does not intend to enforce overly broad confidentiality and non-disparagement provisions and considers such terms null and void. Although this is the GC’s suggestion, there are obvious practical downsides to contacting these individuals (which generally will include individuals who were involuntarily separated from employment, and possibly individuals who threatened or actually did sue the employer), and employers generally do not maintain ongoing contact information of individuals who are no longer employed.
Overbroad terms will not void entire agreement. In good news for employers, the GC states that, to the extent a severance agreement is found to contain overly broad terms, the Board would generally seek to have only those specific overbroad provisions voided, as opposed to seeking recission of the entire agreement, regardless of whether the agreement contains a severability clause.
Merely proffering an invalid severance agreement violates the NLRA. The GC confirms that the mere proffer of an invalid severance agreement violates the NLRA, even if the severance agreement is not signed by an employee.
Former as well as current employees are covered. The GC states that the Decision applies to severance agreements with former employees just like current employees.
Savings clauses are unlikely to cure invalid provisions. The GC suggests that a typical “savings clause” (i.e., a clause stating that nothing in the agreement should be interpreted to forbid engaging in protected conduct under the NLRA or other laws) will generally not be enough to remedy an overly broad severance agreement.
Supervisors are not covered. The memorandum confirms that McLaren Macomb does not apply to supervisors, who are generally not covered by the Act. That said, the GC takes the position that if a supervisor is retaliated against for refusing to proffer an unlawful severance agreement, that could be the basis for the supervisor to pursue a retaliation claim against the employer.
Narrowly tailored confidentiality and non-disparagement clauses may be lawful. The GC clarifies that certain “narrowly-tailored” confidentiality and non-disparagement clauses may be lawful. For example, a nondisclosure provision covering the employer’s confidential or trade secret information for a limited period of time would likely be valid. Similarly, a non-disparagement provision that is time-limited and that covers statements about the employer that constitute defamation may also be permissible.
An employer can maintain confidentiality around the amount of severance. Interestingly, the memorandum suggests that an employer could restrict revealing the amount of the severance. The GC states that “[Operations and Management Memorandum] 07-27 is consistent with the McLaren Macomb decision.” OM 07-27 expressly states that “confidentiality clauses that prohibit an employee from disclosing the financial terms of the settlement to anyone other than the person’s family, attorney and financial advisor are normally acceptable.”
Other terms may also be unlawful. The GC states that other standard terms in severance agreements, including non-competition, non-solicitation, and no-poach agreements, might be found to interfere with employees’ exercise of Section 7 rights. It is unclear when the GC would find such terms unlawful.
Practical implications for employers
In light of the Decision and GC’s memorandum, employers should review their form settlement and separation agreements and practices, but how to respond will be a case-by-case and employer-by-employer decision. An employer should consider, among other factors, whether the employee has Section 7 rights at all (as noted above, supervisors do not), what the employer’s tolerance for risk is, and whether the circumstances make inclusion of a confidentiality and/or non-disparagement provision important in a particular case. Employers might choose to modify the provisions in their standard forms to mitigate risk as suggested by the Board and GC, maintain such provisions as-is, or pursue a middle ground approach because the Board’s authority to award consequential damages in matters involving overbroad severance agreements is potentially limited and because the GC has taken the position that inclusion of these provisions does not void an entire severance agreement. It is also worth noting that the McLaren Macomb case may be challenged in court.
As always, if there are any questions or you would like to formulate a go-forward strategy in light of the Decision and GC’s memorandum, feel free to contact an author of this post or another Hogan Lovells lawyer with whom you work.
Authored by George Ingham, Kenneth Kirschner, and Saydee Schnider.