Two months ago, the National Labor Relations Board (the Board) changed the rules for confidentiality and non-disparagement clauses in severance agreements. In McLaren Macomb, 372 NLRB No. 58 (2023), which we previously wrote about here, the Board ruled that employers generally cannot, as a condition of a severance payment, prohibit employees from disclosing the severance agreement terms or disparaging the employer. In the wake of the Board's ruling, employers have been left wondering under what circumstances, if any, an employer may condition confidentiality and non-disparagement for an employee's receipt of a severance payment.
On March 22, 2023, the Board's General Counsel issued a memorandum further explaining the meaning of McLaren Macomb. Below are four takeaways for employers.
Takeaway # 1: Confidentiality and Non-Disparagement Clauses Are Likely Still Enforceable for Severance Agreements Involving Supervisors
The Board's General Counsel acknowledged that "supervisors are generally not protected under the [National Labor Relations] Act," pursuant to the Board's prior holding in Parker-Robb Chevrolet, 262 NLRB 402 (1982). That is an important acknowledgment for employers hoping to enforce confidentiality and non-disparagement clauses in severance agreements involving senior-level personnel. McLaren Macomb did not involve supervisors. Instead, in that case, the Board held that the employer violated the National Labor Relations Act (NLRA) rights of non-supervisory employees.
The General Counsel's recent statement about the inapplicability of the NLRA to supervisors, viewed together with the facts of McLaren Macomb, suggests that confidentiality and non-disparagement clauses are likely still enforceable as conditions to a severance agreement involving supervisors. Under the NLRA, a supervisor is defined as "any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment"—a definition that will almost always include an employer's senior-level managers. Accordingly, employers should consider keeping their confidentiality and non-disparagement clauses for severance agreements with supervisors.
Takeaway # 2: The Board Will Apply McLaren Macomb Retroactively
According to the General Counsel's memorandum, the Board will apply McLaren Macomb retroactively—or at least it will try to do so. Ordinarily, and as the General Counsel acknowledged in her memorandum, NLRA violations are subject to a six-month statute of limitations set forth in NLRA Section 10(b). But in the General Counsel's mind, a confidentiality or non-disparagement clause in a severance agreement "continues to be a violation and a charge alleging such beyond the Section 10(b) would not be time-barred." Time will tell what the courts think of that legal position. In the meantime, however, employers should expect the Board to challenge the enforcement of confidentiality and non-disparagement clauses in severance agreements, even if the severance agreement was executed before McLaren Macomb.
Takeaway # 3: Confidential Information Protections Remain Permissible
McLaren Macomb bars broad confidentiality clauses that prohibit current or former employees from disclosing the terms of their severance agreement, among other things. The General Counsel acknowledged, however, that not all confidentiality clauses will violate the NLRA, provided the restriction is narrowly tailored. As an example of a narrowly tailored confidentiality clause, the General Counsel conceded that restrictions upon "the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications may be considered lawful." Therefore, employers should remain confident that they may require employees not to misappropriate or disclose confidential information as a condition of severance benefits.
Takeaway # 4: A Prohibited Confidentiality or Non-Disparagement Clause Will Likely Not Invalidate an Entire Severance Agreement
The General Counsel confirmed that unlawfully broad confidentiality and non-disparagement clauses will likely not invalidate the entire severance agreement. Instead, based on the General Counsel's comments, the Board "would seek to have those [clauses] voided out as opposed to the entire agreement, regardless of whether there is a severability clause or not." This is a positive note for employers. Among other reasons, the risk of pre-McLaren Macomb severance agreements being invalidated by virtue of confidentiality or non-disparagement clauses is relatively low.
Takeaway # 5: The Board May Challenge Other Common Clauses for Severance Agreements
McLaren Macomb may be just the beginning of the Board's challenges to severance agreement clauses. When asked if there are "other provisions typically contained in severance-related agreements" that the Board considers "problematic," the General Counsel identified "non-compete clauses; no solicitation 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; [and] cooperation requirements involving any current or future investigation or proceeding involving the employer." These are routine covenants that many employers obtain in exchange for paying severance in the first place. Hopefully, the Board refrains from encroaching too far onto the rights of employees and employers to negotiate severance agreements. Based on the General Counsel's recent comments, however, the Board may soon claim that other severance-related clauses also violate employees' NLRA rights.
Where Do Employers Go from Here?
In light of the General Counsel's recent comments, employers should review their severance agreements for compliance with McLaren Macomb and consider whether their employees subject to a severance agreement qualify as "supervisors" under the NLRA. Employers should also not shy away from enforcing confidentiality clauses in severance agreements that are limited to the protection of an employer's confidential and/or proprietary information.
Venable's Labor and Employment Group will monitor any developments by the NLRB and courts on this issue. If you have specific questions about the McLaren Macomb decision or any forthcoming NLRB decision, please contact the authors of this alert.