NLRB General Counsel’s Severance Agreement Memorandum: What Employers Need to Know

On March 22, 2023, Jennifer A. Abruzzo, General Counsel of the National Labor Relations Board (“NLRB”) issued a memorandum to offer guidance in the wake of the McLaren Macomb decision from February of 2023. Notably, the memo reflects the GC’s views of the decision’s scope and effect and is not binding law, nor does it necessarily reflect the views of the NLRB. The NLRB ruled in McLaren Macomb that an employer’s proffer of a severance agreement containing overbroad confidentiality and/or non-disparagement provisions (or other provisions that violated the National Labor Relations Act (“NLRA”)) is an unfair labor practice under the NLRA. The decision left many unanswered questions, which the GC’s memo purportedly seeks to clarify.

1. Takeaways from the Memo:

    

   1. Severance agreements are not categorically illegal. The McLaren Macomb decision does not completely ban severance agreements. Employers may continue to proffer, maintain, and enforce severance agreements that don’t have overly broad provisions “that affect the rights of employees to engage with one another to improve their lot as employees.”
   2. Overbroad severance agreements violate the NLRA regardless of circumstances or whether an employee signed the agreement. Per the Memo, the Board may find a severance agreement illegal regardless of surrounding circumstances because employers cannot have a legitimate interest in maintaining an unlawful provision. It also doesn’t matter whether an employee has signed the agreement – the agreement itself may be inherently coercive.
   3. Severance agreements with supervisors may be unlawful under certain circumstances. Although statutory “supervisors” generally do not fall within the protections of the NLRA, the NLRA does protect supervisors from retaliation when he/she refuses to do something that would violate the NLRA. An employer cannot, for instance, retaliate against a supervisor for refusing to offer employees overbroad severance agreements.
   4. The McLaren Macomb decision applies retroactively. The GC believes that employers who continue to maintain/enforce unlawful provisions in existing severance agreements are in violation of the NLRA.
   5. An unlawful provision may not void the entire agreement. NLRB Regions typically seek to have the specific unlawful provisions voided, as opposed to the entire agreement.
   6. It is possible to draft valid confidentiality and non-disparagement provisions. According to the GC, confidentiality provisions that are “narrowly-tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications” may be valid. Likewise, non-disparagement provisions which are narrowly-tailored and justified may be valid, so long as they are limited to “employee statements about the employer that meet the definition of defamation as being maliciously untrue.”
   7. “Savings clauses” or disclaimers may not save overbroad provisions. The GC believes that disclaimers may be helpful to “resolve ambiguity over vague terms,” but likely would not cure overbroad provisions.
   8. Other provisions in severance agreements that the GC believes may be problematic: noncompete clauses; non-solicitation clauses; no poaching clauses; broad liability releases and covenants not to sue; and certain cooperation requirements involving current or future investigations or proceedings involving the employer.

       

2. What this means for employers
   

Employers need not rush to take action in the wake of the Memo. Again, the GC’s recommendations are just that: recommendations. At this point, we believe it is highly unlikely that employers will face unfair labor practice charges from former employees who have already received severance. Furthermore, even if such an employee were to file a charge, the most likely outcome of an adverse NLRB finding would be a requirement to contact previous parties to an invalidated agreement, notifying them that the relevant clauses – potentially an overbroad confidentiality provision and/or non-disparagement provision - are void.

Finally, the General Counsel’s Memo does not necessarily reflect the views of the Board. We believe there is considerable likelihood that the NLRB or a court would disagree with some or all of the conclusions in the memo.

Going forward, both in light of the McLaren Macomb decision and the GC Memo, employers should have conversations with counsel regarding what provisions in severance agreements may be appropriate. Although we have significant questions regarding the ultimate impact of the Memo in particular, it is clear that any employer that blindly continues to use its longstanding, pre-2023 severance agreement forms without taking at least some time to think through the issues highlighted above will be taking on legal risk. The Labor and Employment team at DeWitt is happy to help you through the process of reviewing and potentially updating your agreements.