The NLRB's Scrutiny of Severance Agreements in McLaren Macomb

Practical Law Article w-038-9885 (Approx. 23 pages)

The NLRB's Scrutiny of Severance Agreements in McLaren Macomb

by Practical Law Labor & Employment

The High-Level Take-Aways from McLaren Macomb

There are several take-aways from the Board majority's decision in McLaren Macomb. Employers first must recognize that the Board continues to closely scrutinize employment documents under the NLRA, including agreements with employees. This scrutiny applies to both unionized and nonunionized workplaces. Through McLaren Macomb, the Board continued expanding both:

What constitutes employees' rights under Section 7 of the NLRA.
What employer actions or documents could reasonably be construed to interfere with or restrain employees' exercise of those rights. The Board considered how the agreement "could reasonably be" rather than "would reasonably be" construed (372 N.L.R.B. No. 58, slip op. at 3 n.9).

In the Board's view, broad non-disparagement provisions in severance agreements and provisions requiring that the terms of severance agreements remain confidential impermissibly infringe on employees' rights under the NLRA. Specifically, the Board held that these provisions may:

Limit employees' ability to disparage their employer and, in turn, discuss their employment terms and conditions with other employees.
Prevent employees from assisting other employees seeking assistance from the NLRB.
Hinder the employees themselves from seeking assistance from:
- the NLRB;
- unions; and
- other outside organizations, such as soliciting public support for a labor dispute using various media.

(McLaren Macomb, 372 N.L.R.B. No. 58, slip op. at 5-9.)

The Board also held that it is unlawful to merely offer severance agreements containing these types of provisions. In other words, the Board may find an employer has unlawfully proffered a severance agreement with these types of provisions, even if the employer does not attempt to enforce the agreement, or the employer and employee never execute the agreement.

As a result of McLaren Macomb, employers, whether unionized or nonunionized, should reevaluate:

How they draft severance agreements.
With which workers and under what circumstances they may enter severance agreements.
The risks and benefits of:
- entering severance agreements;
- maintaining previously entered severance agreements; and
- attempting to enforce those they have entered.

Whom McLaren Macomb Affects

The NLRA does not cover all employers in the US (29 U.S.C. § 152(2)). NLRB regulations and precedent and federal court precedent further limit the NLRB's jurisdiction over certain types of employers. For simplicity, most private sector employers, besides rail and air carriers, are covered by the NLRA (see NLRB Jurisdictional Limits and Standards Chart: Jurisdiction Over Employers). McLaren Macomb has no implications for severance agreements entered by employers excluded from the NLRA's coverage and their employees.

Likewise, there are several types of workers excluded from the NLRA's coverage (29 U.S.C. § 152(3)). NLRB and federal court precedent further clarify the NLRB's jurisdiction over certain workers (see NLRB Jurisdictional Limits and Standards Chart: Jurisdiction Over Workers). McLaren Macomb should have no implications concerning severance agreements for those excluded workers. Most notably, it should not impact severance agreements for supervisors and managers (but see The General Counsel Will Pursue ULP Complaints for Adverse Actions Against Supervisors Concerning Severance Agreements).

However, it is important for employers to note that:

The Board engages in an exhaustive factual inquiry to determine who is a manager or supervisor.
Neither title nor compensation are determinative in assessing whether an individual an employer considers to be a manager or supervisor is included in the NLRA's expansive definition of covered employees.
(NLRB v. Yeshiva Univ., 444 U.S. 672 (1980), NLRB v. Bell Aerospace Co., 416 U.S. 267 (1974) Oakwood Healthcare, Inc., 348 N.L.R.B. 686 (2006), Croft Metals, Inc., 348 N.L.R.B. 717 (2006), and Golden Crest Healthcare Ctr., 348 N.L.R.B. 727 (2006).)

McLaren Macomb therefore has implications for severance agreements between most private sector employers and the subset of their workers covered by the NLRA.

Employers should also note that although this case involved severance agreements proffered to unionized employees, the employees' union affiliation had no bearing on the Board's conclusions that the severance agreements contained unlawfully overbroad provisions and that the mere proffer of those agreements was unlawful.

Why the Board Found the Non-Disparagement Provision Unlawful in McLaren Macomb

The Board held that a non-disclosure provision that included a non-disparagement term was unlawful because it "broadly prohibited" employees from disparaging the workplace, that is, discussing wages, hours, working conditions, and labor disputes (372 N.L.R.B. No. 58, slip op. at 1, 8). The Board concluded that the "sweepingly broad" prohibitions would have a "chilling tendency" on the exercise of Section 7 rights (372 N.L.R.B. No. 58, slip op. at 8). Employers should note that the provision did not expressly prohibit any of those discussions.

The non-disparagement component of the non-disclosure provision at issue stated:

"At all times hereafter, the Employee agrees not to make statements to Employer's employees or to the general public which could disparage or harm the image of Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives."

(372 N.L.R.B. No. 58, slip op. at 2, 8.)

The Board believes these restrictions may prevent employees from criticizing an employer, complaining about or discussing their current or former workplace, cooperating with a government investigation, participating in agency proceedings, or supporting other employees in those activities, whether those employees were past, present, or future employees. The Board noted that "public statements by employees about the workplace are central to the exercise of employee rights under the [NLRA]" (372 N.L.R.B. No. 58, slip op. at 8).

The Board further concluded the provision was overbroad because it prohibited:

Statements about more than matters concerning the employees' past employment with the employer.
Statements harming not only the employer but also any of its parents, affiliated entities and their officers, directors, employees, agents, and representatives.
Disparaging statements indefinitely, that is from the time the agreement was executed onward, without a "temporal limitation" (372 N.L.R.B. No. 58, slip op. at 8).
Statements protected by the NLRA. The prohibition was not limited to disparaging statements that are so "disloyal, reckless or maliciously untrue as to lose the [NLRA]'s protection." (Emarco, Inc., 284 N.L.R.B. 832, 833 (1987)).

(372 N.L.R.B. No. 58, slip op. at 7-8.)

The Board did not address why it was appropriate to apply its non-disparagement provision analysis retroactively even though employers may have reasonably relied on IGT when drafting the non-disparagement provision in their severance agreement or proffering their severance agreement.

Why the Board Found the Confidentiality Provision Unlawful in McLaren Macomb

The Board held that a confidentiality provision was unlawful for requiring the employee to acknowledge the severance agreements' terms were confidential and to promise not to disclose those terms to:

"any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction."

(372 N.L.R.B. No. 58, slip op. at 2, 8.)

The Board concluded that this provision was unlawful for many reasons, including that it would:

Preclude disclosing the existence of the unlawful non-disparagement provision in the agreement.
Reasonably tend to coerce the employee from:
- filing a ULP charge; or
- assisting an NLRB investigation regarding ULPs committed against the employee or coworkers.
Preclude discussing the terms of the severance agreement with the subject employee's coworkers, who may also need to decide whether to accept a severance agreement. The Board said this would impair the rights of the former coworkers to call on the subject employee for support.
Preclude discussing the terms of the agreement with the subject employee's union, future union, coworkers, and future coworkers.

The Board summarized its analysis by declaring:

"[a] severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment."

(372 N.L.R.B. No. 58, slip op. at 9.)

Although the confidentiality provision does not expressly preclude any of these actions declared to be Section 7 rights under the NLRA, the Board found that this provision:

Conditioned severance benefits on the forfeiture of statutory rights.
Was not sufficiently "narrowly tailored" to respect the range of those rights.
Was a facially unlawful severance agreement provision, for which an employer could have no:
- legitimate interest in maintaining; or
- interest that may outweigh employees' Section 7 rights.

(372 N.L.R.B. No. 58, slip op. at 8-9.)

The Board's expansive views of Section 7 rights in McLaren Macomb is not new. The Board's condemnation of a provision limiting disclosure of a severance agreement's terms because of its hypothetical infringement of those rights is. For example, in Shamrock Foods Co., the Board majority (Members Pearce and Kaplan) affirmed an administrative law judge's conclusion that a confidentiality provision nearly identical to the one in McLaren Macomb could not reasonably be construed to preclude the subject employee from discussing the employee's termination or the employee's other employment terms and conditions because the severance agreement did not contain those matters (366 N.L.R.B. No. 117, slip op. at 3, n.12 (June 22, 2018)).

Likewise, in S. Freedman & Sons, an employee terminated for a traffic accident promised to keep confidential a settlement agreement in which the employee agreed to waive the employee's right to file a union grievance challenging discipline for the accident in return the termination being reduced to a suspension. The Board majority (Members Miscimarra and Hirozawa) did not believe the subject employee would reasonably believe the confidentiality provision precluded discussions about employment terms and conditions other than the accident and the reduction of a termination to suspension in exchange for waiving the grievance. (364 N.L.R.B. at 1203-04).

Then-Member, now-Chairman McFerran's dissenting opinions in those cases are nearly identical to the majority opinion in McLaren Macomb. A new pair of Democratic Board Members, Members Prouty and Wilcox, appear more critical of confidentiality provisions in severance or settlement agreements than two prior Democratic Board Members, Members Pearce and Hirozawa, and joined Chairman McFerran in flipping the Board's analysis.

The Board did not address why it was appropriate to apply its new confidentiality provision analysis retroactively even though employers may have reasonably relied on Shamrock Foods and S. Freedman & Sons when drafting their severance agreements. The McLaren Macomb majority simply overruled these rulings from Shamrock Foods and S. Freedman & Sons and declared the McLaren Macomb provision was not narrowly tailored without either:

Expressly declaring confidentiality provisions per se unlawful.
Identifying how provisions requiring a severance agreement's terms be kept confidential may be sufficiently narrowly tailored.

The Impact of the Board Overruling Baylor and IGT

The Board overruled Baylor and IGT, asserting that the Board panels deciding those cases erred by looking at the circumstances in which the employer proffered the severance agreements rather than the language in those agreements. The Board did not address why it was appropriate to apply its unlawful proffer of a severance agreement analysis retroactively against McLaren Macomb or any other employer that proffered a severance agreement with confidentiality or non-disparagement provisions after Baylor or IGT. Implicitly, the Board held that because Baylor and IGT were wrongly decided, McLaren Macomb and other employers are not protected from liability for relying on their holdings. (McLaren Macomb, 372 N.L.R.B. No. 58, slip op at 2-5.)

While the issue of an employer's reliance on Baylor and IGT may be litigated and addressed in future Board decisions and by reviewing federal appellate courts, employers should expect the Board to hold employers to the McLaren Macomb standard even for severance agreements proffered after Baylor or IGT and before McLaren Macomb.

Employers relying on Baylor when including "non-participation" clauses in their severance agreements should also be prepared for Board scrutiny. In Baylor, the Board permitted the operation of non-participation and confidentiality provisions without evaluating whether their terms were lawful. The non-participation clause provided that the subject employee would not pursue, assist, or participate in any claim brought by any third party against the employer unless compelled to do so by law. The Board in McLaren Macomb did not expressly evaluate a non-participation clause or deem them categorically unlawful. However, employers should expect the Board to at least closely scrutinize and in nearly every case hold those clauses to be unlawful given that the Board:

Overruled Baylor.
Applied McLaren Macomb retroactively without regard to precedent on which the employer may have relied.
Deemed the non-disparagement and confidentiality agreements in McLaren Macomb unlawful because they have the effect of discouraging employees from participating in Board processes or assisting former coworkers in their Board proceedings. In other words, if a severance agreement clause has the effect of discouraging participation in other employees' assertions of Section 7 rights or Board processes, as a non-participation clause ordinarily would, it is unlawful.

The Significance of the Employees in McLaren Macomb Being Represented by a Union

Although not the most attention-grabbing holding from McLaren Macomb, unionized employers should note that the Board also held that the employer unlawfully refused to engage in collective bargaining with the employee's union. More specifically, the Board held that the employer was required to provide the furloughed employees' union with notice and an opportunity to bargain about the decision and effects of the permanent furloughs.

The Board unanimously concluded that while the COVID-19 pandemic and related government restrictions created a crisis in the healthcare industry, the hospital-employer failed to demonstrate its decision to permanently furlough was based on an "economic exigency" (372 N.L.R.B. No. 58, slip op. at 2). The employer failed to show anything happened in June 2020 prompting it to permanently furlough employees who were already temporarily furloughed for three months since the onset of the pandemic. Nothing excused its failure to meet its bargaining obligation.

The Board continues to narrowly apply the RBE Electronics economic exigency exception. Under RBE, an employer may be excused from decision-bargaining obligations and typically is privileged to delay effects-bargaining (such as negotiations about severance pay and any post-employment benefits for separated employees), if the employer demonstrates that:

A major unforeseeable event that is beyond an employer's control has occurred.
That event compels the employer to promptly change its operations, which then affects bargaining unit employees' employment terms and conditions.

(320 N.L.R.B. 80, 82 (1995); for more information about the economic exigencies exception, see The NLRB's Economic Exigencies Collective Bargaining Exceptions Chart; for more information about decision and effects bargaining, see Practice Note, Collective Bargaining Under the National Labor Relations Act: Bargaining Over Changes in Business Operations: Decision Bargaining and Effects Bargaining.)

The Board also held that the employer unlawfully bypassed and excluded the union from collective bargaining by communicating and dealing directly with the union-represented employees about the severance agreements.

It is therefore significant that the employees were represented by a union because the case provided further analysis of collective bargaining obligations in the midst of the COVID-19 pandemic and how narrowly the current Board interprets the economic exigency exception.

It is also significant because the Board ordered that the permanently furloughed employees who were proffered the severance agreements be reinstated and made whole for the employer's failure to bargain about the permanent furloughs and direct dealing. That effectively nullified the severance agreements.

It is unclear what remedies the Board may order for similar severance agreements proffered to permanently furloughed nonunion employees, where there were no attendant collective bargaining obligations and violations related to those agreements.

McLaren Macomb Is Likely to Impact Non-Union Workplaces More Than Union Workplaces

McLaren Macomb is likely to have greater implications for severance agreements with nonunionized employees than the rarer severance agreements directly presented to unionized employees with no union involvement. Unionized employers do not often enter severance agreements outside of the context of reductions-in-force. In those circumstances, unionized employers typically notify union representatives of prospective reductions-in-force, providing an opportunity to bargain before implementation. The parties then typically engage in collective bargaining often about how the reductions-in-force might be implemented and potential alternatives, and often about the post-separation terms. Many collective bargaining agreements include severance plan provisions, severance pay terms if reductions-in-force were to occur during the agreement's duration, or frameworks for negotiations of those employee separation terms.

McLaren Macomb therefore presents an anomalous fact-pattern where a unionized employer, without the union's intercession, entered individual severance agreements with bargaining unit employees. The employer presented the severance agreements to bargaining unit employees in a context more akin to a nonunionized employer presenting severance agreements to nonunionized employees.

The General Counsel Provides More Warnings Than Guidance

The NLRB General Counsel determines how the NLRB Regions investigate and prosecute ULP cases. That includes setting the prosecutorial agenda and priorities for the NLRB Regions and deciding the analysis NLRB attorneys are to use when deciding:

Whether to issue ULP complaints.
Which liability theories to allege.
Which remedies to seek in litigation on those complaints.

General Counsel memoranda are not precedential, so they do not carry the weight of Board decisions. However, they may reveal on which facts and Board precedent regional attorneys are likely to focus when deciding whether to prosecute ULP charge allegations in ULP complaints. There are several take-aways from General Counsel Memorandum GC 23-05.

The General Counsel Intends to Aggressively Scrutinize Severance Agreements to Enforce McLaren Macomb

The terms of severance agreements matter and the circumstances of the agreement's proffer never can justify or lessen the harm of violative terms. It is irrelevant whether or not the employee signs the agreement or asks for the overbroad terms. However, the General Counsel also acknowledged that Board precedent has upheld severance agreements with narrow waivers, such as releases waiving only the signing employee's right to pursue employment claims, and specifically those arising only up to the date of the agreement. The General Counsel also stated that the NLRB regions are not seeking to ban all severance agreements.

The General Counsel Offered Limited Guidance on Narrowing Non-Disparagement and Confidentiality Provisions

The General Counsel suggests that non-disparagement provisions be limited to restricting defamatory statements about the employer that would not be protected by the NLRA under Board and Supreme Court precedent. The General Counsel defines and would require employers to define defamatory statements "as being maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity" (GC Mem. GC 23-05 at 5-6). The General Counsel does not expound on the Board's concerns in McLaren Macomb about a lack of temporal limitations in the non-disparagement provision.

Confidentiality provisions that restrict the "dissemination of proprietary or trade secret information for a period of time" based on legitimate business justifications may be considered lawful (GC Mem. GC 23-05 at 5). The General Counsel does not identify the basis for requiring a temporal scope concerning the non-disclosure of these types of information or suggest a permissible time limit.

The General Counsel also points to NLRB Operations-Management Memorandum OM 07-27, which, in the context of vetting whether to approve non-Board settlements (agreements between parties which include the withdrawal of ULP charges), 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." (Non-Board Settlements, NLRB Operations-Management Mem. OM 07-27 (Dec. 27, 2006).)

For whatever the analysis of apples is worth to the analysis of oranges, the memorandum also highlights the broad discretion of the General Counsel to approve or disapprove of non-Board settlements. The General Counsel's assertion that OM 07-27 remains viable at best suggests that the General Counsel and Regions may use discretion to approve a non-Board settlement agreement with a confidentiality of financial terms provision. Employers hoping to settle ULP charges should take note of OM 07-27.

Employers defending confidentiality provisions in severance agreements should certainly cite to it as evidencing that the NLRB has historically not been critical of agreements requiring confidentiality of their terms. The operations-management memorandum might persuade a Region to not take a hardline in prosecuting a confidentiality provision ULP case, especially if there are no other ULP charge allegations concerning the severance agreement's terms or the proffer of the agreement.

However, the value of this operations-management memorandum is unclear. The General Counsel does not expressly equate non-Board settlements to severance agreements. Analysis of non-Board settlements in operations-management memoranda are not binding on the Board. Shamrock Foods and S. Freedman & Sons were binding precedent from a few years ago, when Democratic-majority Board panels still were not so critical of agreements requiring the confidentiality of their terms. The Board summarily overruled those cases' analysis of confidentiality provisions.

Savings Clauses May Clarify Ambiguities but Are Not Panaceas

The General Counsel notes that a savings clause, which was not present in the McLaren Macomb severance agreement, might clarify ambiguities in but not necessarily cure overbroad provisions. The General Counsel suggests expansive language that the General Counsel's office previously urged the Board to endorse in a pending employee handbook and employment rules case for use in employee handbooks, may also clarify employees' rights in severance agreements (NLRB Gen. Counsel Br. In Response to The Board's January 6, 2022 Notice and Invitation to File Briefs, Stericycle, Inc., Case 04-CA-137660, pp. 14-15, n.20 (filed Mar. 7, 2022)).

The General Counsel recommends including in severance agreements a provision stating:

"[No provision of this agreement should be interpreted as restricting the employee from engaging in:] (1) organizing a union to negotiate with their employer concerning their wages, hours, and other terms and conditions of employment; (2) forming, joining, or assisting a union, such as by sharing employee contact information; (3) talking about or soliciting for a union during non-work time, such as before or after work or during break times, or distributing union literature during non-work time, in nonwork areas, such as parking lots or break rooms; (4) discussing wages and other working conditions with co-workers or a union; (5) taking action with one or more co-workers to improve working conditions by, among other means, raising work-related complaints directly with the employer or with a government agency, or seeking help from a union; (6) striking and picketing, depending on its purpose and means; (7) taking photographs or other recordings in the workplace, together with co-workers, to document or improve working conditions, except where an overriding employer interest is present; (8) wearing union hats, buttons, t-shirts, and pins in the workplace, except under special circumstances; and (9) choosing not to engage in any of these activities."

(GC Mem. GC 23-05 at 6.)

The General Counsel does not suggest this language saves all severance agreements or what language short of this recital might save one.

The Regions Generally Will Seek to Void Only Unlawful Terms, Not Entire Agreements

The General Counsel indicates that, subject to the specific facts of the case, the Regions generally decide whether to issue a complaint based solely on the severance agreement's unlawful provisions and would seek an order voiding only those provisions rather than the entire agreement. The Regions do so regardless of whether or not the agreement contains a severability provision. Although this note seems positive for employers, especially for those with agreements lacking a severability clause, it implies that:

All prospective ULP claims and remedies may be pursued if:
- the employer coerces the employee to sign the agreement or otherwise commits ULPs; or
- there are provisions besides confidentiality or non-disparagement provisions in the severance agreement that a Region discovers when inspecting the agreements and believes are unlawful.
The Regions do not intend to ask or require employees to return the severance pay or benefits provided as consideration for the voided terms.

The General Counsel Encourages Employers to Voluntarily Rescind Unlawful Severance Agreement Provisions

The General Counsel encourages employers with severance agreements containing overbroad confidentiality or non-disparagement provisions to attempt to remedy those violations before any ULP proceedings arise. Employers are encouraged to contact employees subject to severance agreements with overly broad provisions and advise them that:

The provisions are null and void.
The employer will not:
- seek to enforce the agreements; or
- pursue any penalties, monetary or otherwise, for breaches of those unlawful provisions.

The General Counsel noted that Regions have settled cases where the employer voluntarily took those actions and that those actions might be the basis for Regions to consider a merit dismissal for a ULP charge solely alleging an unlawful proffer.

The General Counsel Will Pursue ULP Complaints for Adverse Actions Against Supervisors Concerning Severance Agreements

The General Counsel asserts that McLaren Macomb has implications for severance agreements issued to supervisors. The General Counsel acknowledged that supervisors are not covered by the NLRA but pointed to a rarely applied Board precedent, Parker-Robb Chevrolet, Inc., for its statement that discharging a supervisor in retaliation for refusing to commit a ULP under the employer's direction puts actions concerning supervisors under the Board's purview. That case held that the discharge of a supervisor was not a ULP. It noted, however, that an employer (because of its impact on employees vindicating their Section 7 rights) could not discharge a supervisor for one or more of the following:

Refusing to commit a ULP against employees.
Failing to prevent unionization.
Giving adverse testimony at:
- an NLRB investigation or proceeding; or
- a grievance arbitration.

(262 N.L.R.B. 402, 403-04 (1982).)

The General Counsel deduces from McLaren Macomb that an employer may violate the NLRA by retaliating against a supervisor refusing to proffer an unlawfully overbroad severance agreement. The General Counsel further theorizes without supportive precedent that an employer may commit a ULP by proffering a severance agreement to a supervisor to prevent the supervisor from engaging in Parker-Robb Chevrolet-related conduct, such as preventing the supervisor from participating in a Board proceeding.

This announcement encourages laid-off, fired, or perhaps disciplined supervisors to allege the employer took an adverse action against them because of their refusal to proffer severance agreements that may be unlawful under McLaren Macomb. Those supervisors may inform the Regions of suspect severance agreements, prompting an investigation and disclosure of severance agreements, regardless of whether the facts ultimately support a Parker-Robb Chevrolet supervisor claim.

The General Counsel Infers That McLaren Macomb Applies Retroactively to All Employers and Asserts that the Continuing Violation Theory Bypasses Statute of Limitations Hurdles

The General Counsel stated an intention to apply McLaren Macomb retroactively, even to separation agreements proffered when Baylor governed. To the extent the statute of limitations period has already run on unlawful proffer charges, the General Counsel also noted that regions will allege the maintenance or enforcement of the severance agreement's unlawful terms is a continuing violation and therefore not time barred.

McLaren Macomb-Like Analysis Applies to Other Types of Agreements

The General Counsel noted her belief that existing Board law requires analysis similar to McLaren Macomb's analysis of confidentiality and non-disparagement terms in severance agreements to those types of provisions in pre-employment employer communications and offer letters.

The General Counsel Is Scrutinizing Other Severance Agreement Provisions

The General Counsel intends to scrutinize and pursue ULP complaints concerning other types of provisions commonly in severance agreements, including:

Non-compete clauses.
Non-solicitation clauses.
No poaching clauses.
Broad liability releases and covenants not to sue.
Cooperation agreements.

Without supporting precedent, the General Counsel indicated that liability releases and covenants not to sue cannot lawfully extend:

Beyond:
- the employer; or
- employment claims.
To claims arising after the effective date of the agreement.

The General Counsel believes cooperation requirements violate the NLRA if they require an employee to assist the employer in current or future NLRB investigations or proceedings, such as by requiring the employee to testify against coworkers they assisted with filing a ULP charge.

The General Counsel does not explain how the other provisions might violate the NLRA.

Employer Considerations for Future Severance Agreements

The Big Picture

Broadly speaking, NLRA-covered employers should first reconsider why they enter severance agreements. For example, employers may consider:

What interests these agreements protect or other benefits they provide.
The value of that protection or those benefits or the costs to the employer if those interests were not protected.
Whether particular components of severance agreements are most valuable.
Whether the value of the severance agreements vary by employee or based the job classification or role of those employees.
Whether there are other lawful mechanisms for protecting those interests or gaining those benefits.
Whether or to what extent the employer would enforce the agreement if the subject employee were in breach.

The answers to those questions may vary substantially. However, returning to McLaren Macomb, employers may consider whether or to what extent they value having severance agreements with non-management, non-supervisory employees. If they derive no or little value from entering severance agreements with so-called rank-and-file employees covered by the NLRA, they can generally avoid NLRB compliance issues under McLaren Macomb.

If employers find value in entering severance agreements with employees covered by the NLRA, they should consider whether those agreements are materially less valuable if they do not include the types of provisions scrutinized in McLaren Macomb, namely:

Non-disparagement provisions.
Provisions requiring the terms of the severance agreement to be kept confidential.
Non-participation provisions, which certainly will be scrutinized after the Board overruled Baylor.

After considering those questions, employers should revisit their template separation or severance agreements for rank-and-file employees and consider revising or eliminating non-participation provisions, non-disparagement provisions, and provisions broadly requiring subject employees to keep the terms of the agreements confidential.

The Board majority considers each of these types of provisions to be potential relinquishments of Section 7 rights, which are not currently per se unlawful, but must be narrowly tailored to survive Board scrutiny. The Board majority unfortunately did not identify how narrow these types of provisions must be to be lawful. At best, employers can look to the General Counsel's guidance on narrowing these clauses to avoid ULP prosecutions.

Employers should also recognize that the General Counsel is effectively encouraging disgruntled managers and supervisors to report their employers for proffering severance agreements to NLRA-covered employees. Whether or not those managers or supervisors can raise a viable ULP claim, they can spur investigations of severance agreements. Employers are wise to judiciously manage persons:

Given access to copies of severance agreements and templates.
Tasked with offering, maintaining, and enforcing severance agreements.

Savings Clauses

The Board also did not provide analysis of prospective contract language that may save these types of provisions from being ULPs to proffer and presumably to enforce. The McLaren Macomb severance agreements contained no exclusionary language or disclaimers concerning Section 7 rights, so it is uncertain whether the outcome of the case would be the same if the provisions individually or the severance agreement generally contained a disclaimer.

Employees also may not reasonably understand these provisions to restrict their rights if there were a disclaimer stating that each provision or the agreement generally was not intended and should not be understood to restrict or interfere with the subject employees exercising their rights under Section 7 of the NLRA or filing a charge with, assisting, or participating in investigations of the NLRB. These types of individual or general disclaimers may not be determinative for the current Board. However, they may lead a reviewing federal appellate court to question whether the Board arbitrarily found employees would reasonably construe the provisions as chilling participation in Board processes or otherwise interfering with employees' exercise of rights under Section 7 of the NLRA.

The General Counsel's suggested savings language is likely longer and more complicated that the provisions it is supposed to clarify (See The General Counsel Offered Limited Guidance on Narrowing Non-Disparagement and Confidentiality Provisions). Risk averse employers still interested in entering severance agreements with rank-and-file employees may consider including the lengthy General Counsel savings clause, but should not expect the presence of the clause to immunize the employer from ULP litigation.

Non-Disparagement Provisions

Employers interested in including non-disparagement provisions in their severance agreements may consider prohibiting departing employees from disparaging the employer's products or services or making maliciously untrue statements against the employer and its agents. The Board traditionally upholds these limitations which are rooted in Supreme Court precedent (see NLRB v. Elec. Workers Loc. 1229 (Jefferson Standard Broad. Co.), 346 U.S. 464, 477 (1953); Linn v. Plant Guards Local 114, 383 U.S. 53, 58, 63-65 (1966)). The General Counsel does not reference those kinds of limitations in GC 23-05, but also does not condemn them.

Employers might also consider:

Setting temporal scopes for non-disparagement provisions; however neither the Board nor the General Counsel suggests what temporal limitation might be lawful.
Limiting the non-disparagement provision to matters arising during the subject employee's employment.

Non-Participation and Confidentiality Provisions

The Board's restored analysis of non-participation provisions and its new analysis of the provisions requiring confidentiality of the severance agreement's terms do not instruct how these types of provisions might be sufficiently narrowly tailored to survive Board scrutiny. The General Counsel references OM 07-27, but does not explain its application to severance agreements or address the overruling in part of Shamrock Foods and S. Freedman & Sons. The General Counsel does not suggest there is any way to narrowly tailor a non-participation provision.

Employers desiring these types of provisions in their severance agreements must weigh their prospective value to the employer against the risks of ULP litigation and an inability to enforce those terms without more ULP litigation risk. Employers interested in these provisions may attempt to insert carveout language creating exceptions to the provisions, but the current Board is not likely to approve of a provision that does not create exceptions for each of the rights the McLaren Macomb confidentiality provision was construed to infringe on and every prospective action the provision would tend to chill. At that point, it would seem the General Counsel and the Board would require the exceptions to swallow the restrictions.

If employers are reviewing their severance agreements for employees covered by the NLRA, they should also review any non-disclosure provisions precluding disclosure of information other than the terms of the severance agreement. Although the Board focused on the non-disparagement component of the non-disclosure provision in McLaren Macomb, employers should note that in other contexts, the Board has scrutinized employment rules requiring employees not to disclose information learned of during or concerning their employment (see Practice Note, Employee Electronic Communications Under the National Labor Relations Act : Confidentiality Rules; The NLRB's Boeing Categories for Employment Rules Chart: Confidentiality Rules). The Board has found that employees would reasonably understand those prohibitions to interfere with their right to discuss their or coworkers' terms and conditions of employment or labor disputes with coworkers, unions, the public, and the NLRB. GC 23-05 suggests that the General Counsel is thinking about confidentiality provisions in severance agreements in that way.

Employers interested in including confidentiality provisions in severance agreements should consider either or both:

Defining what constitutes confidential, privileged, or proprietary information, to the extent it prohibits disclosure of those classifications of information or communications.
Using exclusionary language explaining that those terms do not include information concerning wages, hours, working conditions, or labor disputes. Employers may also consider disclaiming that the non-disclosure provision is intended to prohibit the employee from discussing wages, hours, working conditions, or labor disputes.

Other Provisions

The General Counsel also appears to be targeting other types of provisions commonly in severance agreements, including non-compete clauses, non-solicitation clauses, no poaching clauses, broad liability releases and covenants not to sue, and cooperation agreements. The General Counsel entered the NLRB into a memorandum of understanding with the Federal Trade Commission (FTC), noting the agencies' mutual interests in protecting workers against "the imposition of one-sided and restrictive contract provisions, such as noncompete and nondisclosure provisions" (Mem. of Understanding Between the Federal Trade Commission (FTC) and the National Labor Relations Board (NLRB) Regarding Information Sharing, Cross-Agency Training, and Outreach in Areas of Common Regulatory Interest, at 1 para. 3 (July 19, 2022)). However, it is unclear how the General Counsel contends these violate the NLRA. The Board has not indicated whether it endorses the General Counsel's views on these types of provisions in severance agreements.

Employers should recognize that ULP investigations and prosecutions are possible and increasingly likely as the General Counsel ramps-up the Regions' pursuit of ULP prosecutions on new liability theories. The General Counsel needs a large stable of cases so the Regions have ample opportunities to ask the Board to create new law supporting ULP determinations on those theories. While it is unclear whether the Board may endorse some or all of the General Counsel's theories and even less clear that federal courts of appeals may grant enforcement of Board decisions and orders rooted in the General Counsel's new theories, employers should expect and budget for more NLRB litigation. Severance agreement confidentiality, non-disparagement, and non-participation provisions are the first in a long line of contract provisions the General Counsel and Board intend to scrutinize.

Employers should also recognize that while McLaren Macomb considers severance agreements under an NLRA-compliance lens, other laws and enforcement activities by other federal and state agencies may also have implications for severance agreements for all employees. Employers that review and revise their template severance agreements in light of McLaren Macomb should also consider other agency's guidance or enforcement plans concerning waivers of rights and releases in severance or settlement agreements. For example, the Equal Employment Opportunity Commission (EEOC), the Securities and Exchange Commission (SEC), and the FTC each have attempted to regulate employer-employee agreements containing waivers of rights or imposing post-employment restrictions on former employees. Several states have also enacted restrictions on the use of non-disclosure agreements in the wake of the #MeToo movement (see, for example, Practice Note, Sexual Harassment Claims in Settlement, Arbitration, and Other Employment Agreements State Laws Chart: Overview).

Employer Considerations for Previously Offered and Entered Severance Agreements

As noted previously, there are many questions left unanswered by the Board's analysis in McLaren Macomb and General Counsel Memorandum 23-05. In turn, evaluating an employer's prospective liability concerning previously offered severance agreements and identifying best approaches to mitigate litigation and liability risks is difficult.

Analysis of an employer's potential liability under McLaren Macomb starts with procedure and jurisdiction. The limitations period for ULP charges under Section 10(b) of the NLRA is six months (29 U.S.C. § 160(b)). If an employer and the subject former employee are covered by the NLRA, ordinarily the question for determining whether a ULP allegation is timely is whether the proffer, signing, or provision of payment or benefits under the severance agreement occurred within the past six months. The Board did not address the issue in McLaren Macomb, but the General Counsel asserts that maintaining or attempting to enforce a severance agreement with provisions deemed unlawful under the NLRA is a continuing violation.

If so, ULP charges concerning overbroad severance agreement non-disparagement and confidentiality provisions proffered long ago still may be timely. The General Counsel may alternatively argue and the Board may in time hold that the maintenance and enforcement of the severance agreements are ULPs independent of the proffer, making those charges timely even if the continuing violation theory were not to extend the viability of a proffer claim alive outside of its 10(b) period.

If a severance agreement were proffered after Baylor was issued and before McLaren Macomb was issued, an employer might argue that it reasonably relied on extant Board law when it took its most recent action regarding that severance agreement, should a timely ULP charge be filed. That argument does not appear to have been considered in McLaren Macomb as the Board did not address why it was appropriate to apply its new analysis to McLaren Macomb's severance agreements, which were proffered after Baylor and before IGT was issued.

The General Counsel asserts that because the Board did not address that point, it must be presumed that the Board's retroactive application of McLaren Macomb is appropriate for all employers. Reviewing federal appellate courts may ultimately disagree, but employers must deal with the General Counsel supporting Regions as they issue ULP complaints and a Board that did not question the propriety of applying its holding retroactively.

Likewise, an employer might argue that it relied on Shamrock Foods and S. Freedman & Sons when drafting a provision requiring the subject employee to keep the severance agreement's terms confidential. Until McLaren Macomb, dissenting rather than Board opinions condemned those provisions standing on their own. Neither the Board nor the General Counsel addresses the propriety of retroactively applying McLaren Macomb when an employer relied on these precedents.

The General Counsel only notes a belief that consistent with OM 07-27, the Board might permit a Region to allow a claimant to withdraw a ULP charge using an agreement that includes confidentiality provision that precludes an employee from disclosing the financial terms of the severance agreement to the employee's family, attorney, and financial advisor. That belief is hardly reassuring for employers presently concerned with severance agreements not non-Board settlements of ULP charges.

Beyond those considerations, an employer must review how similar or dissimilar their agreements' provisions are to those in the McLaren Macomb severance agreements. It is crucial to note whether the agreements had disclaimer language that the McLaren Macomb agreements lacked. It is unlikely that employers would have identical severance agreements to those analyzed in the case or identical facts and circumstances. The Regions would likely measure the savings language against the General Counsel's proposed language. Measured against that model, the Regions are not likely to dismiss ULP charges concerning broad non-disparagement or confidentiality provisions based on savings clauses.

After reviewing these considerations, employers with suspect severance agreement confidentiality, non-participation, or non-disparagement provisions might consider voluntarily informing subject employees that the provisions are being voided and will not be enforced, as the General Counsel encourages. Employers must consider, among other things:

The costs of doing so.
The likelihood that:
- the employer would attempt to enforce the severance agreement if an employee were in breach;
- an employee would file a ULP charge based on the severance agreement if the employer took no action;
- an employee would file a ULP charge based on other provisions in the severance agreement if the employer alerted the employee of the NLRB's interest in severance agreements by attempting to rescind the provisions that may be unlawful under McLaren Macomb; and
- a supervisor or manager (presumably a former supervisor or manager) with knowledge of the severance agreements may report the employer to the NLRB.
The costs of future litigation or settlement negotiations if an employee were to file a ULP charge concerning the severance agreement.

Employers may reach different conclusions and may take different actions based on their perceived risks, risk tolerance, resources, and the perceived value of the provisions in their severance agreements.

Regardless of how employers handle previously entered severance agreements, they should expect efforts to enforce their agreements to likely result in ULP charges and litigation. Employers should consider revising labor and employment litigation expectations and budgets.

Conclusion

McLaren Macomb and General Counsel Memorandum GC 23-05 raise the specter of increased ULP investigations and prosecutions concerning severance agreements. Confidentiality, non-disparagement, and non-participation provisions are already under close Board scrutiny. The General Counsel is scrutinizing many other types of provisions and other types of agreements and is expected to vigorously pursue ULP prosecutions. It remains unclear what may ultimately be deemed lawful and unlawful under the NLRA by the Board or reviewing appellate courts.

NLRA-covered employers should:

Stay tuned for:
- the Board's developing analysis of severance and other agreements with employees; and
- the General Counsel's evolving prosecutorial agenda and theories of employer ULP liability.
Consider the reasons they enter severance and other agreements with NLRA-covered employees.
Consider the reasons they draft severance and other agreement provisions for those employees as they do.
Weigh the values they derive from entering those agreements overall and as drafted against the increased risks that:
- they face ULP litigation and liability; and
- they may not be able to effectively enforce those provisions in light of the Board's developing precedent.
Consider adjusting protocols concerning severance and other agreements with NLRA-covered employees.
Consider whether there are alternative agreements they may want to enter, such as to protect specifically defined confidential or proprietary information (see, for example, Standard Document, Employee Confidentiality and Proprietary Rights Agreement).
Judiciously manage:
- who has access to copies of severance agreements and templates; and
- whom it tasks with offering, maintaining, and enforcing severance agreements.
Remember the business and non-NLRA legal compliance considerations that drive their decisions and actions.

The NLRB's Scrutiny of Severance Agreements in McLaren Macomb | Practical Law