On February 21, 2023, the National Labor Relations Board (the “Board” or “NLRB”) issued a precedent-shifting decision holding that employers who offer severance agreements with broad non-disparagement and confidentiality clauses violate Section 8(a)(1) of the National Labor Relations Act (the “Act” or “NLRA”). The NLRB’s decision in McLaren Macomb marks a reversal of Trump-era rulings that gave employers broad latitude to include confidentiality provisions and non-disparagement clauses in severance agreements.
The decision is also significant in that it is not just limited to severance agreements in unionized workplaces. Because Section 7 of the Act protects most employees’ right to engage in concerted activity regardless of whether employees are involved in a union, the decision could have significant impact on all employers moving forward.
Accordingly, severance agreements that condition the receipt of severance benefits on the restriction or forfeiture of the rights under the Act will be unlawful as having a reasonable tendency to interfere with or restrain protected activity. While the NLRB’s decision will likely be appealed, the ruling is effective immediately and impacts all employers regardless of whether they employ unionized or non-union workforces. Keep reading to learn what you need to know about this recent decision.
What Did the Decision Do?
The NLRB’s decision in McLaren Macomb expands employee rights and revives an Obama-era NLRB decision holding that a severance agreement violates Section 8(a)(1) of the Act if its terms tend to interfere with workers’ Section 7 organizing and bargaining rights. Section 8(a)(1) broadly prohibits employer conduct that coerces employees or otherwise interferes with their statutory rights under Section 7 to engage in “protected concerted activity.”
The specific confidentiality and non-disparagement terms at issue in McLaren Macomb were held to violate the Act because they were too broad and tended to “chill” the exercise of employees’ Section 7 rights to collectively band together in an effort to improve the workplace. The decision expressly overruled two NLRB decisions issued during the Trump administration that found these types of agreements were not unlawful. Now, even the mere “proffering” of a severance agreement with overly restrictive language can qualify as an unfair labor practice (or “ULP”) because, according to the Board, “the offer itself is an attempt to deter employees from exercising their statutory rights, at a time when employees may feel they must give up their rights in order to get the benefits provided in the agreement.” Whether the employee accepts the agreement is immaterial. Thus, employers may be found to have committed an unfair labor practice simply by offering employees severance agreements with overly restrictive language even if the employer does not seek to enforce the agreement.
Although the decision applies broadly to both unionized and non-unionized workplaces, it is not without limits. Notably, not all workers have Section 7 rights under the Act. For instance, independent contractors, managers, most supervisors, public sector employees, and some agricultural workers are not covered by the Act and do not have rights under Section 7. As such, agreements with individuals in these excluded positions are not affected by this decision. Additionally, the decision does not grant employees the freedom to say anything they want. Communications that are reckless or maliciously untrue fall outside the scope of the Act’s protections.
Risk for Increased Monetary Liability for ULP Violations
The NLRB’s decision in McLaren Macomb signals a return of the NLRB’s close scrutiny of workplace policies that controlled during the Obama era. Not only are employers’ workplace policies under heightened scrutiny, employers now also face the potential for increased monetary liability for ULP violations because of the Board’s recent decision in Thryv, Inc. expanding the scope of “make-whole” remedies. Before the Board’s Thryv, Inc. decision, the make-whole remedy was limited to reinstatement and backpay. However, in its December 2022 decision, the Board ruled that its “make-whole” remedy includes compensating employees “for all direct or foreseeable pecuniary harms suffered” as a result of labor violations. “Foreseeable harms” include those for which an employer or union “knew or should have known would be likely to result from its violation of the” Act. In evaluating ULP cases, employers will now need to consider this expanded range of remedies and its resulting potential monetary liability. Requiring an employer to compensate for “direct or foreseeable pecuniary harms” could significantly increase the size of awards in labor cases.
What can Employers Do Now?
Moving forward, employers should be mindful of the NLRB’s decision when drafting severance agreements for employees covered by Section 7. Additionally, in light of the Board’s December 2022 decision regarding the expanded “make-whole” remedy, employers will also need to carefully weigh the increased risk of ULP cases resulting from a violation of an employee’s rights under Section 7.
Employers may consider implementing certain safeguards to minimize risk when drafting severance agreements, including: (1) removing severance provisions such as confidentiality and non-disparagement clauses that may be interpreted as restricting Section 7 rights; (2) ensuring that the language of any potentially restrictive clause is as narrow as possible (in both time and subject matter); (3) including severability provisions in their agreements to help ensure that if certain provisions (such as the confidentiality and non-disclosure provisions) are found to be unlawful, the other provisions (such as the waiver and release of claims) will remain in effect; and/or (4) including a disclaimer in the agreement that expressly carves out statutorily protected rights. Keep in mind, however, that any such carve-outs or disclaimers need to be specific, comprehensive, and prominently displayed in order for the NLRB to view them as effective. At the very least, any disclaimer should affirmatively allow employees to: (a) participate in Section 7 activity; (b) file ULP charges; (c) assist others in doing so; and (d) otherwise cooperate with the Board’s investigative process. Disclaimer language that does not adequately explain employee rights runs a risk of being rejected by the Board.
Another important question is whether the Board’s decision applies retroactively to severance agreements that employers already have in place with departed employees. If so, are these agreements now invalid and able to be disregarded without losing severance benefits? The answer is not clear. However, the Board’s own procedural statute of limitations rule effectively bars employees from bringing charges for alleged violations that occurred more than six months before the charge was filed. Thus, the Board’s six-month limitations period would likely cut off liability for any agreements proffered outside that period regardless of retroactive applicability. Further, if an employer drafted the severance agreement at a time when the law allowed such provisions, this could be used as a potential defense to a complaint seeking retroactive application of the new rule.
