In a case decided by the National Labor Relations Board (“NLRB” or “Board”) on February 23, 2023, provisions in separation and settlement agreements regarding non-disparagement and confidentiality may run afoul of the National Labor Relations Act (“NLRA” or “Act”). On March 22, 2023, in an effort to provide guidance as to the scope and impact of the decision, the NLRB’s General Counsel issued a Guidance for how its regional offices should evaluate these agreements going forward. The Guidance suggests that the decision has even broader ramifications than initially thought. As described below, the decision along with the Guidance should cause employers to pause before inserting many commonly used provisions in these types of agreements.
The case involved the following provisions in separation agreements agreed to by 11 employees being laid off during the early stages of the COVID pandemic by their Michigan employer, McLaren Macomb Hospital.
Confidentiality Agreement. The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them 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.
Non-Disclosure. At all times hereafter, the Employee promises and agrees not to disclose information, knowledge, or materials of confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee’s employment. 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 or affiliated entities, and their officers, directors, employees, agents, and representatives.
The Board held that these provisions “unlawfully restrain and coerce the furloughed employees in the exercise of their Section 7 rights,” that is, their right to engage in protected concerted activities under the NLRA. The Board further held that the mere proffer of agreements with such terms is unlawful. This ruling applies without regard to whether employees are represented by a union, without regard to whether entering into such agreements is voluntary or not, and without regard to whether the employee is a current or former employee.
The General Counsel’s Guidance
Given the volume of inquiries regarding the decision’s implications, on March 22, 2023, the General Counsel issued a “Guidance in Response to Inquiries about the McLaren Macomb Decision.” Among the guidance provided, the General Counsel indicated:
- Separation agreements are still lawful “if they do not have overly broad provisions that affect the rights of employees to engage with one another to improve their lot as employees. This includes the rights of employees to extend those efforts to channels outside the immediate employer-employee relationship, such as through accessing the Board, their union, judicial or administrative or legislative forums, the media, or other third parties.”
- Provisions of the kind at issue are “facially unlawful,” and therefore the employer’s intent is irrelevant.
- The employee’s agreement to such terms is also irrelevant.
- While “supervisors are generally not protected by the Act,” an employer would violate the Act if it retaliated against a supervisor who refuses to proffer an overly broad severance agreement, or if it proffered a severance agreement to a supervisor that prevented the supervisor from participating in a Board proceeding.
- While the statute of limitations for filing a claim with the Board is six months, the decision could be applied to overly broad agreements entered into beyond that period on the basis that the violation continues as long as the impermissible provisions remain in effect. The General Counsel noted that the Board has entered into settlements that required employers to notify former employees that overly broad terms in their settlement agreements no longer applied.
- Agreements with such terms generally will not be voided, even those without severability provisions.
- The ruling applies to both current and former employees.
- While narrowly tailored confidentiality provisions may be lawful, those that “have a chilling effect,” i.e., those that preclude employees from assisting others about workplace issues and/or from communicating with the Board, a union, legal forums, the media, or other third parties, are unlawful.
- With respect to non-disparagement clauses, after noting that “public statements by employees about the workplace are central to the exercise of employees’ rights under the Act,” the General Counsel stated that “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, may be found lawful.” In addition to making similar comments, the Board in its decision also referenced earlier cases finding a non-disparagement ban to be overbroad because it encompassed all disputes, terms and conditions, and issues, without a temporal limitation and with application to parents and affiliate and their officers, representatives, employees, directors, and agents.
- “While… disclaimer language may be useful to resolve ambiguity over vague terms, [it] would not necessarily cure overly broad provisions. The employer may still be liable for any mixed or inconsistent messages provided to employees that could impede the exercise of Section 7 rights.”
- The rationale of the Board’s decision may apply to other commonly used provisions, such as non-compete clauses, no-poaching clauses, broad liability releases, and covenants not to sue that may go beyond employment claims as of the effective date of the agreement.
What This Means Going Forward
First, it is important to note that this legal development only applies to private-sector employers. The NLRA does not cover public sector employers and their employees.
Second, given the limited circumstances in which the ruling would apply to supervisors, it should have little impact with respect to agreements with supervisors. Their agreements still should be carefully drafted due to the terms of Board’s decision.
Third, it is far from clear how the ruling may impact other provisions in settlement agreements, or other types of agreements, such as non-compete agreements. What we know, though, is that the General Counsel is primed to try to expand the scope of the decision.
And finally, the decision and the General Counsel guidance as to what the decision means and how it will be applied will be the subject of more litigation before the Board and judicial review. Drafting agreements that adequately address the interests of employers is now in a state of flux, if not chaos. Employers’ continued use of boiler-plate provisions are now subject to a new level of legal scrutiny. What may survive the NLRB’s standards, particularly through the lens of the General Counsel’s Guidance, is now more difficult to determine than ever. All employers should take notice and consider more deliberately what provisions are truly necessary and how to tailor their agreements with their workers.
The Board’s decision will likely be appealed, but the outcome is far from certain. The bottom line is “tread with care.” The ground rules have dramatically changed.
For more information about the information in this alert, please contact Rob Boonin (734-214-7650 or [email protected]), Mel Muskovitz, (734-214-7633 or [email protected]), your Dykema relationship attorney, or any of the attorneys in Dykema’s Labor and Employment practice group.