NLRB Rules Against Severance Agreements Deemed Overly Broad in McLaren Macomb Decision

Employers should take a fresh look at all of their severance agreements they have with former employees, or would typically propose to employees, following last week's decision of the National Labor Relations Board (the "Board") in McLaren Macomb.[1] The Board ruled that broadly worded confidentiality, non-disclosure, and non-disparagement clauses in severance agreements with employees covered by National Labor Relations Act (the "Act") – which excludes supervisors and executives – are per se unlawful under that statute.[2] Going further, the Board announced that merely proposing a severance agreement that the Board would consider overbroad is unlawful, stating that "[w]hether the employee accepts the agreement is immaterial."

In the wake of McLaren Macomb, employers would be justified in thinking the Board has made it even more difficult to draft a severance agreement that adequately meets employers' concerns without violating the Act. However, as discussed below, the Board hinted at ways employers might draft lawful confidentiality, non-disclosure, and non-disparagement clauses.   

The Board's Decision

The case stems from an employer's lawful, pandemic-related, economic layoff. As part of the layoff process, the employer proposed that the union-represented employees sign individual severance agreements. The Board held that the following provisions, which many employers would characterize as "must haves" for any settlement or severance agreement, violated the Act:

• That exiting employees may not disclose any confidential, propriety, or privileged information.
• That exiting employees may not disclose any terms of the agreement 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."
• That exiting employees may not "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."

The Board noted that the prohibitions were not time-limited, and employees who violated those terms could be subject to injunctive relief, potential, liability for the employer's actual damages, and costs and attorney fees related to the employer's enforcement of the severance agreement.

The Board cited its obligation to protect rights bestowed to employees under Section 7 of the Act. Specifically, the Board asserted that employees have the virtually unfettered right to communicate with third parties, including current and former co-workers, other workers, and third parties using all "administrative, judicial, legislative, and political forums, newspapers, the media, social media, and communications to the public" at their disposal. In the Board's words:

Section 7 affords protection for employees who engage in communications with a wide range of third parties in circumstances where the communication is related to an ongoing labor dispute and when the communication is not so disloyal, reckless, or maliciously untrue as to lose the Act's protection.   

Because the provisions broadly prohibited employees from, among other things, disclosing any information regarding the terms of the severance agreement, and/or making any statements that disparaged or harmed the employer, the Board found that these terms were so overbroad that each had "a reasonable tendency to restrain, coerce, or interfere with the exercise of Section 7 rights by employees, regardless of the surrounding circumstances."

It bears noting that the Board found the terms so onerous, and the potential sanctions so great, it held that simply offering employees the severance agreement violated the Act; in the Board's view, the employer's offer, on its face, constituted an attempt to deter employees from exercising their statutory rights.   

How Can Employers Lawfully Draft Severance Agreements Going Forward?

Considering the Board's decision, employers should promptly review with counsel any non-disclosure, non-disparagement, and confidentiality clauses in their severance agreements and consider whether they implicate the following issues:

• With whom may a separating employee discuss the terms of their severance agreement or any other matters related to their employment?
  • Do the terms limit disclosure broadly and, if so, can the limitations be narrowed?
  • Are there any express or implied exceptions or other "carveouts" to comply with state and federal laws, including the Act?
• Does the agreement contain broadly worded prohibitions on what information employees may share after signing the agreement?
  • Are terms like confidential, privileged, or proprietary clearly defined?
  • Are employees expressly permitted to discuss (or prohibited from discussing) labor relations matters, as the Board has broadly defined that term?
• What may employees say about the company after separation?
  • Does the agreement broadly prohibit employees from making any statements that disparage or denigrate the employer?
  • Does the agreement prohibit statements that would "harm" or embarrass the company?
  • Does the agreement define or provide examples of terms like disparage, denigrate, harm, or embarrass?
  • Are prohibitions limited to statements that are disloyal, reckless, or maliciously false?
• Can certain restrictions on employees' disclosure of certain information be defined more narrowly?
• If the employer is concerned primarily with the disclosure of specific categories of information, it should consider identifying those categories and providing examples.
• Consider whether a non-disparagement provision is necessary at all.
  • Are concerns that the parting employee will broadcast negative comments after separation warranted?
  • If the concerns are justified, identify the kinds of statements the employer wants to prohibit (for example, maliciously untrue statements or statements that attack the quality of the company's products or services).

Navigating the post-McLaren Macomb era will be difficult. The Board has only told employers what kinds of provisions in a separation agreement violate the Act; the Board only hints at limitations it might find acceptable. Moreover, the Board's decision does not address the question of whether severance agreements that were negotiated at arms' length, where the employee had and/or took advantage of the opportunity to negotiate the terms and consult legal counsel or, if applicable, their labor representative, would violate the Act.

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The labor and employment attorneys at Davis Wright Tremaine LLP stand ready to assist our clients by providing the expertise necessary to review, edit, and revise separation agreement templates to comply with the Board's decision.

With more than 100 attorneys across the country, DWT’s employment services group is one of the largest and most diverse employment and labor teams in the U.S. Our labor attorneys have substantial experience with regulatory bodies, courts, and unions and can provide employers in all industries with fast, practical counsel for their most pressing needs. Contact us here.

[1] The Board’s decision applies retroactively. As such, the Board would likely find an employer’s enforcement of overbroad terms in existing severance agreements unlawful.

[2] The Act gives most workers the right to, among other things, work with other employees for their mutual aid and protection, act collectively to improve their working conditions, and form a union. Those protections do not extend to independent contractors, managers, supervisors, public sector employees, most agricultural workers and workers covered by the Railway Labor Act.