In the wake of the National Labor Relations Board’s (NLRB) February 23, 2023 opinion in McLaren Macomb, 372 NLRB No. 58 (2023) regarding whether employers could include confidentiality and non-disparagement provisions in severance agreements, many questions remained as to the scope and application of the opinion.
Clyde Snow previously issued guidance in the immediate aftermath of the McLaren opinion, but the NLRB has since issued its General Counsel Memorandum GC 23-05 (GC Memo) on March 22, 2023, answering many questions plaguing businesses since McLaren.
The most significant takeaways from the GC Memo are that the McLaren decision (1) is retroactive and affects all prior agreements containing problematic provisions, (2) potentially extends to provisions other than confidentiality and non-disparagement clauses within any employer-employee agreements, and (3) confidentiality and non-disparagement agreements are not prohibited, but they must be narrowly tailored.
Impact is Retroactive
The NLRA contains a six-month statute of limitations during which an employee may bring a claim for violative provisions in a severance agreement. However, the GC Memo made clear that a company’s act of “maintaining and/or enforcing a previously entered severance agreement with unlawful provisions . . . continues to be a violation” and an employee’s complaint of such an agreement “would not be time-barred.” GC Memo, at 3. This means that doing nothing regarding prior agreements would constitute a continuing violation and toll the six-month statute of limitations indefinitely.
The GC Memo posits that an employer may avoid continuing violations by “contacting employees subject to severance agreements with overly broad provisions and advising them that the provisions are null and void and that they will not seek to enforce” such provisions against the employees. Id. This presents employers with a conundrum as to whether to do nothing and risk tolling the statute of limitations or to notify employees and essentially invite them to make a claim or to engage in the very conduct the provisions originally sought to prohibit. Employers should also consider that the NLRB’s position may be challenged in court and may change under future administrations.
Application Extends to Other Types of Provisions and Agreements
Though the GC Memo repeatedly refers to “severance agreements” and confidentiality/non-disparagement provisions, the GC Memo suggests that McLaren and the Memo’s guidance apply to other restrictive provisions (non-competition, non-solicitation, liability releases, and cooperation agreements) in other agreements between employer and employee (pre-employment letters, offer letters, settlement agreements, etc.). GC Memo at 5, 6-7. The NLRB’s position appears to be that that any overly broad provision in any agreement that potentially interferes with an employee’s rights under Section 7 of the NLRA would be considered to violate the NLRA and the McLaren decision.
This is a departure from the initial beliefs that McLaren was restricted to severance agreements containing problematic confidentiality or non-disparagement provisions. Now, we know that McLaren may extend to all other employer-employee agreements, so employers would be wise to review all of their agreement templates to ensure there are no provisions that would appear to restrict the rights of employees under Section 7 of the NLRA.
Confidentiality and Non-Disparagement Agreements are not Banned, but Must be Narrowly Tailored
The GC Memo was clear to state that confidentiality agreements are not banned by McLaren, but that any restrictive provisions must not contain “overly broad provisions that affect the rights of employees” under the NLRA. Confidentiality provisions protecting a business’s proprietary or trade secret information are still permitted, as are non-disparagement provisions that restrict defamatory speech. However, any provisions that have a “chilling effect” on employees’ exercise of their rights are prohibited, even when accompanied by a “savings clause” that seeks to inform the employee that nothing in the provision is intended to infringe upon their rights under the NLRA. While savings clauses can be useful, if the restrictive portion of the provision is sufficiently aggressive to have a chilling effect, any savings clause will likely be viewed as ineffective.
In the wake of the GC Memo’s guidance effectively extending the reach of McLaren, employers should carefully review both prospective as well as past agreements to ensure compliance with the NLRA and take action to correct any shortcomings. Clyde Snow’s Labor & Employment Group will continue to monitor developments with respect to this decision and advise as to best practices post-McLaren. For more information or any questions, you may contact Clyde Snow’s Labor Group directly.