NLRB Further Clarifies New Severance Agreement Criteria

A few weeks ago, in late February 2023, we cautioned employers about a game changing National Labor Relations Board decision severely restricting confidentiality and disparagement clauses in severance agreements.^[1]

Yesterday, March 22, 2023, the NLRB’s top lawyer published additional guidance on this subject.[2]  General Counsel Abruzzo has now declared:

• • The new standard has “retroactive application.”  Further, “maintaining and/or enforcing a previously-entered severance agreement with unlawful provisions” will be considered to be a continual violation, and therefore not time-barred.
  • Employers “should consider remedying” past violations by contacting employees subject to severance agreements with “overly broad provisions” to tell them that the provisions are “null and void” and that they will not be enforced. 
  • The new standard applies to former employees and does “not depend on the existence of an employment relationship between the employee and the employer.” 
  • Supervisors are generally not protected by the Act.  However, an employer who proffers a severance agreement to a supervisor following a supervisor’s opposition to unfair labor practices, or who tries to prevent the supervisor from participating in a Board proceeding, could also be unlawful.
  • Pre-employment offers are subject to the same limitation as severance agreements.  GC Abruzzo explained that she believes “non-compete clauses, no solicitation clauses, no poaching clauses, broad liability releases, and covenants not to sue that go beyond the employer or employment claims may also be unlawful. 
  • Severance agreements can still waive the employee’s right to pursue employment claims “only as to claims arising as of the date of the agreement” so long as they do not have “overly broad provisions” that prohibit protected, concerted activities. 
  • Whether or not an employee actually signed a severance agreement is “irrelevant.” “[The mere] proffer itself inherently coerces employees by conditioning severance benefits on the waiver of statutory rights.”
  • Confidentiality clauses may still be lawful, but only when “narrowly-tailored to restrict dissemination of proprietary or trade secrets information for [distinct] periods of time based on legitimate business justifications.” 

In other words, employers cannot require employees to keep the existence of the agreement confidential, including the amount paid by the employer in exchange for the severance agreement. 

Also, “confidentiality clauses that have a chilling effect that precludes employees from assisting others about workplace issues and/or from communicating with the [NLRB], a union, legal forums, the media or other third parties are unlawful.”

• • While a specific savings clause or disclaimer language may be useful to resolve ambiguity over vague terms, they would not necessarily cure overly broad provisions.
  • Non-disparagement clauses are lawful only where the clause is “narrowly-tailored” and “justified” to prohibit statements that are “maliciously untrue and made with knowledge of their falsity or with reckless disregard for their truth or falsity.” 

That means that employees who sign severance agreements can still demean their former employer on social media (and elsewhere) with subjective opinions that do not satisfy the legal and difficult to prove definition of defamation.

This is obviously surprising and disappointing for employers.  The new criteria will diminish the value (and perhaps frequency) of severance agreements.  That means more controversy, and legal disputes.

[1] McLaren Macomb, 372 NLRB No. 58 (February, 2023).

[2] Memorandum GC 23-05, Guidance in Response to Inquiries about the McLaren Macomb Decision (March 22, 2023).