NLRB General Counsel Clarifies Recent Ruling on Severance Agreements
March 24, 2023
This week, Jennifer A. Abruzzo, the General Counsel of the National Labor Relations Board, issued a memorandum providing guidance in response to inquiries submitted to the Board following its decision in McLaren Macomb, 372 NLRB No. 58, which you can read about here. The General Counsel’s memo provides clarity on a number of important issues stemming from the Board’s decision, notably the following:
- The General Counsel made clear that the Board’s decision is meant to apply retroactively, not only prospectively. This means that any severance agreement which was proffered by an employer to an employee or agreed upon prior to February 21, 2023, when the decision in McLaren Macomb was issued, is subject to the holdings in that case. Therefore, any such agreement currently in existence containing terms like those which the Board deemed to violate the National Labor Relations Act cannot be maintained or enforced, at least not without amendment.
- Notwithstanding the above, the General Counsel also indicated that such agreements are not necessarily automatically void in their entirety. Instead, she noted that deficiencies in such agreements may be able to be remedied by employers by notifying their former employees that the unlawful provision(s) contained in the agreements no longer apply. She added that while each circumstance must be reviewed based on the specific facts, in most cases, the Board likely would invalidate only an unlawful provision and enforce the remainder of a severance agreement, as opposed to voiding the entire agreement.
- The General Counsel also clarified that the ruling was not intended to invalidate all confidentiality and non-disparagement clauses in severance agreements, but only those which violate employees’ rights under Section 7 of the Act. She stated that such clauses may still be included and enforceable so long as they are “narrowly-tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications…” in the case of confidentiality provisions, and in the case of non-disparagement clauses, so long as they are “limited to employee statements about the employer that meet the definition of defamation…” Thus, employers should take this guidance under consideration when reviewing existing severance agreements and when drafting new ones they plan to offer prospectively.
Lastly, as a possible preview of decisions yet to be issued by the Board, the General Counsel indicated that she believes that other common provisions contained in severance agreements may similarly violate the Act. Specifically, she listed non-compete clauses, non-solicitation clauses, no poaching clauses, broad liability releases, and covenants not to sue. While her memo, by itself, has no impact on the viability of such clauses for the time being, employers drafting severance agreements should carefully consider whether to include such provisions in their agreements moving forward and if they do, should draft the language in such clauses very carefully, as it seems clear that the General Counsel has indicated her desire for the Board to take a look at their enforceability should it have the opportunity to do so in future cases.