NLRB Decision Restricting Broad Confidentiality/Non-Disparagement Clauses Applies Retroactively
Pointing to Sweeping Pro-Employee Enforcement, NLRB General Counsel Also Calls for Broad Interpretation of What Constitutes Prohibited Confidentiality and Non-Disparagement Clauses
- The National Labor Relations Board's (NLRB or Board) recent decision in McLaren Macomb significantly restricts the rights of employers to offer or enforce severance and other agreements containing confidentiality and non-disparagement provisions that include overly broad waivers of rights under the National Labor Relations Act (NLRA). The NLRB's General Counsel on March 22, 2023, released guidance (General Counsel Memorandum GC 23-05) directing NLRB Regional offices to broadly interpret the McLaren Macomb decision.
- The GC Memorandum clarifies a number of issues, including that the prohibitions on overly broad confidentiality and non-disparagement clauses apply retroactively to agreements already entered into, that maintaining such agreements is a continuing violation not subject to the NLRA's six-month statute of limitations, that overly broad confidentiality and non-disparagement provisions generally will not invalidate other lawful provisions of the agreement, and that employers cannot retaliate against supervisors who refuse to proffer an unlawfully overbroad severance agreement to an employee.
- The GC Memorandum provides some guidance on the types of confidentiality and non-disparagement clauses that may be considered lawful and whether a "savings clause" or disclaimer can save overly broad provisions in a severance agreement. It also indicates that the Board may soon examine non-competition and non-solicitation clauses, liability releases and covenants not to sue under a similar pro-employee framework.
The National Labor Relations Board (NLRB or Board) on Feb. 21, 2023, issued the McLaren Macomb decision (372 NLRB No. 580) significantly restricting an employer's right to proffer to employees severance agreements that contain overly broad confidentiality and non-disparagement provisions. As previously covered by Holland & Knight (see Holland & Knight's previous alert, "NLRB Restricts Use of Severance Agreements with Broad Confidentiality/Non-Disparagement Clauses," Feb. 24, 2023), under McLaren, terms in a severance agreement are unlawful if they have a reasonable tendency to interfere with, restrain or coerce employees in the exercise of their Section 7 rights. Applying this test, the Board held that the employer's broad confidentiality and non-disparagement provisions were unlawful and that the mere act of presenting an employee with an agreement containing the overly broad terms constituted an unfair labor practice.
The heart of the McLaren decision is the concept that agreements requiring the forfeiture of Section 7 rights – regardless of whether they are actually accepted by employees – are unlawful "unless narrowly tailored." As framed in the new GC Memorandum, the "Section 7 activities that are of primary importance towards the fulfillment of the [NLRA's] purposes … and [are] likely to be chilled by overbroad rules" are:
- organizing a union to negotiate conditions of employment
- forming, joining or assisting a union
- talking about or soliciting for a union during non-working hours in non-work areas
- discussing wages and working conditions with co-workers
- taking action with co-workers to improve working conditions by complaining to the employer, the government or a union
- striking and picketing lawfully
- taking photographs or recordings at work to document or improve working conditions except where the employer has an overriding interest
- wearing union attire/pins/buttons/etc. at work
- choosing not to engage in any of the foregoing
These are, in short, "the rights of employees to engage with one another to improve their lot as employees … includ[ing] the rights of employees to extend those efforts to channels outside the immediate employee-employer relationship, such as through accessing the Board, their union, judicial or administrative or legislative forums, the media or other third parties."
With these statutory rights in mind, the GC Memorandum expounds and expands on McLaren's holdings, largely to the benefit of employees. The Memorandum – which addresses such issues as what is and is not "narrowly tailored" (undefined in McLaren) in the context of confidentiality and non-disparagement clauses, the statute of limitations, the impact of "savings" and disclaimer clauses, and severability – provides a crucial insight into the direction NLRB Regional Offices will take in bringing and prosecuting unfair labor practice charges.
In-Effect Severance Agreements Are Covered by McLaren, and the Continuing Violation Theory Extends the Statute of Limitations
The GC Memorandum makes clear that McLaren applies retroactively. Thus, the General Counsel cautions, employers should proactively consider contacting those subject to severance agreements with overly broad provisions to advise that "the provisions are null and void and that [the employer] will not seek to enforce the agreements or pursue any penalties, monetary or otherwise, for breaches of those unlawful provisions."
Critically, the General Counsel takes the position that maintaining a previously entered-into severance agreement with terms running afoul of McLaren "continues" to be a violation of the NLRA. Accordingly, the action of maintaining such agreements creates a continuing violation that is not subject to the NLRA's six-month statute of limitations and could give rise to alleged unfair labor practices years after a severance agreement is executed. Adopting this continuing violation theory appears to create evergreen violations of the NLRA for employers who do not proactively and affirmatively contact former employees to notify them that certain clauses will not be enforced. The General Counsel notes, however, that employers who do contact former employees to rescind offending clauses may still be liable for a technical violation of the NLRA due to the "unlawful proffer." But such a rescission "could form the basis for consideration of a merit dismissal if a meritorious charge solely alleging an unlawful proffer is filed."
Confidentiality and Non-Disparagement Clauses Are Still Permitted, But with Even More Restrictions
McLaren's holding that it is unlawful to include a confidentiality provision in a severance agreement prohibiting employees from disclosing the existence and terms of the agreement "to any third person" is based on the premise that these terms reasonably coerce employees from filing unfair labor practice charges, assisting the Board in an investigation and discussing the terms of such agreements with other current or former co-workers or union representatives, as well as generally impair the rights of other co-workers to seek support from an employee bound by such terms.
The GC Memorandum carries this premise further. The General Counsel's interpretation of McLaren is that confidentiality clauses "that have a chilling effect that precludes employees from assisting others about workplace issues and/or from communicating with the Agency, a union, legal forums, the media or other third parties are unlawful." Using the "and/or" disjunctive means that a confidentiality clause that precludes "communicating with … the media or other third parties" about the employer would be overly broad and prohibited even if the clause has no tangible connection to workplace issues or "the rights of employees to engage with one another to improve their lot as employees." In one small concession for employers, however, the General Counsel noted that a narrowly tailored confidentiality clause that is limited to non-disclosure of the agreement's financial or monetary terms "would not typically interfere with the exercise of Section 7 rights."
The General Counsel's similarly expansive take on fundamental employee rights underpins additional restrictions on non-disparagement provisions. As the Memorandum states, "[i]t is critical to remember that public statements by employees about the workplace are central to the exercise of employees' rights under the [NLRA]." As such, a non-disparagement clause encompassing "all disputes, terms and conditions, and issues, without a temporal limitation and with application to parents and affiliates and their officers, representatives, employees, directors and agents" will likely not be found lawful. Furthermore, the most the General Counsel was prepared to say about "a narrowly-tailored, justified, non-disparagement provision that is limited to employee statements about the employer that meet the definition of defamation as being maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity," is that they "may be found lawful" – not that they are lawful across-the-board (emphasis added).
Savings Clauses, Carve-Outs and Severability
The General Counsel also notes that though specific savings clauses or disclaimers may be useful to resolve ambiguity over vague terms, they "would not necessarily cure overly broad provisions" and the employer is still responsible for "mixed or inconsistent messages … that could impede the exercise of Section 7 rights" (emphasis added). Tacking on a sentence to confidentiality or non-disparagement provisions generally disclaiming intent to infringe on Section 7 or NLRA rights almost certainly will not be effective. Indeed, to the General Counsel, in order to have a chance of succeeding, a savings clause or disclaimer would need to specifically reference all nine of the fundamental Section 7 rights identified in the Memorandum and listed above.
That said, the Memorandum notes that the Board generally "seeks to have [offending provisions] voided out as opposed to [voiding] the entire agreement, regardless of whether there is a severability clause or not." It therefore seems unlikely that the Board will attempt to completely undo a settlement and release of claims due to the presence of overly broad confidentiality or non-disparagement provisions running afoul of McLaren. But the General Counsel also noted that "it is necessary to review the facts of each and every case in the first instance." So, nothing is guaranteed.
What McLaren Means for Supervisors
Although the General Counsel noted that supervisors generally are not protected under the NLRA, she also reminded employers that under established NLRB precedent, it would be unlawful for an employer to retaliate against a supervisor who refuses to proffer an overly broad severance agreement to any employee. In addition, according to the General Counsel, it could be unlawful to provide a supervisor with a severance agreement that prevented the supervisor from participating in a Board proceeding.
A Preview of Enforcement to Come?
The GC Memorandum also addressed the question of whether there are other provisions typically contained in severance-related agreements (besides the confidentiality and non-disparagement provisions at issue in McLaren) that she views as problematic. Couching her response in terms of interference with Section 7 rights, the General Counsel identified potential concerns with "non-compete clauses; no solicitation clauses; no poaching 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 as that affects an employee's right to refrain under Section 7." This potentially implicates many standard terms in settlement agreements and hints that the General Counsel may soon ask the Board to examine these types of clauses under a similarly pro-employee framework.
Suggestions for Employers
The suggestions and advice provided in Holland & Knight's aforementioned original alert on the McLaren decision remain viable:
- Employers should analyze their severance, separation, settlement and other agreements containing confidentiality and non-disparagement provisions in light of the new test set forth in McLaren, as expanded upon in the GC Memorandum.
- Employers should consider narrowly tailoring any agreements containing confidentiality and non-disparagement provisions to carve-out activities protected by Section 7 of the NLRA, such as discussing terms and conditions of employment with co-workers and third parties, filing unfair labor practices, assisting other employees in filing charges and assisting in the Board's investigative process. As we have learned in other contexts under the NLRA, and as confirmed in the GC Memorandum, these carve-outs or disclaimers need to be very specific, comprehensive and prominently displayed in order for the Board to view them as effective.
- Employers should consider restricting non-disparagement provisions to the types of disloyal statements typically recognized by the Board as unprotected. This includes maliciously false statements and attacks on the employer's products, services or customers.
- Employers should consider limiting non-disclosure provisions to the financial or monetary terms of the agreement, which the GC Memorandum suggests would be lawful.
- Employers should include severability provisions in their severance and other agreements to help ensure that a finding that certain provisions of the agreement are unlawful (i.e., the confidentiality and non-disparagement provisions) cannot be used as a basis for striking down other provisions, such as the general waiver and release of claims.
- Based on the GC Memorandum, and depending on the circumstances, it may be advisable to contact former employees to specify that (now) unlawful provisions will not be enforced. But according to the General Counsel, even that will not cure a technical violation of the Act. As such, it would appear to be more important that the employer be careful not trigger another violation by seeking to enforce the unlawful provision.
For more information on how McLaren impacts your business, please contact the authors or your Holland & Knight advisors.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.