“The McLaren Macomb decision and NLRB’s General Counsel Memorandum GC 23-05 will undoubtedly affect employer practices for using confidentiality and non-disparagement provisions with employees. However, the exact impact will depend on the employer’s preferences, risk tolerance, and employees at issue,” said Andrew R. Turnbull, Partner at Morrison Foerster. Andrew represents companies on a broad range of labor and employment litigation and counseling matters.

“Some risk averse employers may wish to remove non-disparagement and confidentiality provisions from their employment agreements.  Other employers, however, may wish to take a more surgical approach to these provisions in consultation with experienced counsel,” added Andrew in an exclusive interview with HR.com. 

Excerpt from the interview:

Q: What should employers do on an immediate basis now that the National Labor Relations Board (NLRB) ruled that companies can no longer offer severance agreements that include non-disparagement and confidentiality clauses?

Andrew: The McLaren Macomb decision (“McLaren”) does not outlaw all confidentiality and non-disparagement provisions, instead finds that those provisions with employees covered by the National Labor Relations Act (“NLRA”) are unlawful if they are not “narrowly tailored.”  

Unfortunately, the NLRB declined to provide clear guidance for when such provisions could meet that standard, and the NLRB’s General Counsel Memorandum GC 23-05 (the “Memorandum”) provides no examples of lawful provisions and expands the reach of McLaren beyond the facts of that case to other types of employment agreements and provisions.

Employers should revisit their use of non-disparagement and confidentiality provisions in severance and other employment agreements in light of the McLaren decision and Memorandum.  

Depending on the employer’s preferences, risk tolerance, and employees at issue, employers may want to consider removing those provisions or taking a more surgical approach to narrowing or limiting non-disparagement and confidentiality provisions in agreements with employees. 

Q: What will the short-term and long-term implications of this ruling be? What is the scope of this memo?

Andrew: The long-term impact of the decision remains to be seen as the appeals process for the McLaren decision is not over. Pending such a challenge, the McLaren decision will likely remain the law unless or until a new Republican-controlled NLRB overturns it. 

In the short term, employers should consider reviewing their non-disparagement and confidentiality provisions with employees since the NLRB appears to be taking an expansive interpretation of McLaren. Indeed, the following points from the Memorandum show that the NLRB is taking a broad view of McLaren.
 

• Employment agreements, such as offer letters, and “communications” that contain non-disparagement and confidentiality provisions are subject to McLaren. The General Counsel concludes that overbroad provisions in “any employer communication to employees” that tend to interfere with, restrain, or coerce their exercise of NLRA Section 7 rights would be unlawful “if not narrowly tailored to address a special circumstance justifying the impingement on workers’ rights.”

 

• McLaren applies to overbroad agreements with supervisors.  Despite recognizing that the NLRA does not apply to supervisors and managers, the General Counsel says that the NLRA prohibits employers from retaliating against supervisors for refusing to violate the NLRA, including for refusing to proffer an unlawfully overbroad non-disparagement or confidentiality provisions that limit the supervisor’s participation in NLRB proceedings.

 

• McLaren applies retroactively.  Although the General Counsel recognizes the NLRA’s six-month statute of limitations for filing an unfair labor practice charge, the General Counsel says that “maintaining and/or enforcing a previously-entered severance agreement” entered six months before the McLaren decision would be a continuing NLRA violation, which may provide a basis for a timely unfair labor practice charge. The memorandum notes that, “while it may not cure a technical violation of an unlawful proffer,” employers should consider remedying a prior violation by contacting former employees who received severance agreements containing overly broad confidentiality and/or non-disparagement provisions to advise them that the provisions are null and void and that the employer will not seek to enforce them. 

 

• Reinforces McLaren’s “narrowly tailored” standard, without providing examples of enforceable provisions. The Memorandum does not provide any examples of potentially lawful non-disparagement and confidentiality provisions. Instead, the General Counsel reiterates the vague guidance from McLaren that non-disparagement provisions should have a temporal limit and only include defamatory statements, such as statements that are “malicious untrue” or made with knowledge of or reckless disregard for their truth or falsity. The Memorandum also notes that confidentiality provisions that only prohibit disclosure of financial terms or disclosure of proprietary or trade secret information and have a temporal limitation may be lawful, without providing any further details on what provisions might be lawful. The Memorandum notes that clauses that prohibit employees from communicating with the NLRB, a union, a legal forum, the media or other third parties are unlawful.

 

• Overbroad provisions are unlawful even if the employee requests them. The General Counsel says that non-disparagement and confidentiality clauses would be unlawful, even where the employee requests them, because “the NLRB protects public rights that cannot be waived in a manner that prevents the future exercise of those rights regardless of who initially raised the issue.” 

Q: How will it affect employers?

Andrew: McLaren and the Memorandum will undoubtedly affect employer practices for using confidentiality and non-disparagement provisions with employees. But, the exact impact will depend on the employer’s preferences, risk tolerance, and the employees at issue. Some risk-averse employers may wish to remove non-disparagement and confidentiality provisions from their employment agreements. Other employers, however, may wish to take a more surgical approach to these provisions in consultation with experienced counsel.   

In addition to the employer’s preferences and risk tolerance, the approach employers take may be, in part, dependent on the employees at issue.  
 

• Supervisors: The NLRA does not apply to most supervisors and properly classified independent contractors. Under the NLRA, supervisors generally include any employees having the authority to hire, fire, discharge, direct, and exercise other responsibilities relating to employees. Because most managers, executives, directors, and independent contractors are excluded from NLRA coverage, non-disparagement and confidentiality provisions with those individuals should not be affected by this ruling. Despite recognizing that the NLRA does not apply to supervisors and managers, the General Counsel says that the NLRA prohibits employers from retaliating against supervisors for refusing to violate the NLRA, including for refusing to proffer an unlawfully overbroad non-disparagement or confidentiality provisions that limit the supervisor’s participation in NLRB proceedings. Accordingly, employers may want to include some carveout language in confidentiality and non-disparagement provisions with these individuals since it is possible that a broadly drafted provision might be interpreted to unlawfully prohibit them from aiding or assisting in the NLRB’s processes and interfere with the rights of NLRA-covered employees seeking their assistance in unfair labor practice proceedings or investigations.

 

• Unionized Employers Must Be Mindful of Their Bargaining Obligations: Although the NLRA can apply to non-union employers, employers with unionized workforces are at a higher risk of potential NLRB enforcement actions. Unionized workers and their unions generally are more inclined to pursue unfair labor practice charges with the NLRB than non-unionized workers. Indeed, the employer in McLaren failed to notify the union about the decision to terminate 11 newly unionized employees, thereby depriving the union of the opportunity to bargain about the layoff and its effects, such as higher severance packages. Employers with unionized workers should generally provide notice to the union, and satisfy their statutory decision and effects bargaining obligations, when presenting severance agreements to union-represented employees.

Employers also should be mindful of the trend of federal and state laws restricting employers from using confidentiality and non-disparagement provisions. Over the past several years, a growing chorus of states (e.g., New York and California) have passed laws restricting the use of confidentiality and non-disparagement provisions in employment agreements. Although these laws vary in their requirements, they generally prohibit those types of provisions if they could be interpreted to restrict employees from discussing various unlawful acts related to the workplace or other potential claims, such as discrimination, harassment, and retaliation. In December 2022, the federal Speak Out Act was signed into law prohibiting enforcement of pre-dispute non-disclosure and non-disparagement provisions in sexual harassment or sexual assault disputes.

Q: Do you think the NLRB ruling could go so far as to discourage some companies from offering severance packages altogether? Please elaborate.

Andrew: Most companies are not likely going to ditch their practices for offering severance to employees in exchange for a release of claims and other protections, but they probably will reconsider their use of confidentiality, non-disparagement, and other provisions in those severance agreements to mitigate the risk of the NLRB finding those provisions unlawful.  

On a positive note, the Memorandum acknowledges that employers may continue to offer, maintain, and enforce severance agreements as long as they do not have overly broad provisions that “affect the rights of employees” under the NLRA. The General Counsel also notes that if a severance agreement contains provisions that are overbroad and violate the NLRA, NLRB Regions would generally seek to have those provisions voided, as opposed to voiding the entire agreement, even if the agreement has no severability provision. 

That being said, the Memorandum shows that when the NLRB receives unfair labor practice charges alleging non-disparagement, confidentiality, and other provisions in employment agreements violate employee NLRA Section 7 rights, the NLRB will likely scrutinize those provisions closely.  Indeed, the Memorandum, without any apparent rationale, says that the NLRB will review other provisions in employment agreements that could be unlawful under McLaren if they could interfere with employees’ exercise of their NLRA Section 7 rights, including non-competes, non-solicits, broad releases, and cooperation clauses.

Q: What are the aspects of the ruling that need further clarification or change?

Andrew: Neither the NLRB in McLaren nor the NLRB General Counsel in the Memorandum provides examples of lawful confidentiality and non-disparagement provisions or if a savings clause could remedy those provisions from being found unlawful.  

The Memorandum does not provide any examples of potentially lawful non-disparagement and confidentiality provisions. Instead, the General Counsel reiterates the vague guidance from McLaren that non-disparagement provisions should have a temporal limit and only include defamatory statements, such as statements that are “maliciously untrue” or made with knowledge of or reckless disregard for their truth or falsity. The Memorandum also notes that confidentiality provisions that only prohibit disclosure of financial terms or disclosure of proprietary or trade secret information and have a temporal limitation may be lawful, without providing any further details on what provisions might be lawful. The Memorandum notes that clauses that prohibit employees from communicating with the NLRB, a union, a legal forum, the media or other third parties are unlawful.

The General Counsel suggests that to the extent a savings clause is included in the agreement, it “should focus on Section 7 activities that are of primary importance” for NLRA purposes. Yet, the General Counsel does not provide an example of a savings clause that the NLRB finds acceptable.

In light of the Memorandum, employers should consider how and when they use these provisions with their employees. Where employers decide to use these provisions, they should review the General Counsel’s guidance to see if there might be ways to limit those provisions in a manner that would still meet their business objectives. For example, employers might consider adding a temporal limitation, limiting the definition of disparagement, and only having confidentiality clauses that cover financial terms and confidential information. 

In addition, although neither the NLRB in McLaren nor the General Counsel in her Memorandum addresses whether a carveout of NLRA rights would be sufficient to save an otherwise overbroad non-disparagement and confidentiality provision, both left the door open for that possibility. Unfortunately, the General Counsel provides no clear guidance on what carveout might save such provisions. Instead, she identifies nine specific NLRA rights she views as being of “primary importance.” Employers will need to consider the scope and expansiveness of any saving clause for non-disparagement and confidentiality clauses in employment agreements.  
 

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