17 April 2023

NLRB'S Combination McLaren Decision And GC Memo KO's Severance (And Other) Agreements

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In the McLaren Macomb opinion issued last month, 372 NLRB No. 58 (2023), the National Labor Relations Board ("NLRB") landed a healthy punch chipping away at what had previously been considered...
United States Employment and HR
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In the McLaren Macomb opinion issued last month, 372 NLRB No. 58 (2023), the National Labor Relations Board ("NLRB") landed a healthy punch chipping away at what had previously been considered standard severance provisions in employment contracts because they substantially interfere with employees' National Labor Relationship Act ("NLRA") Section 7 rights. On March 22, 2023, with its Memorandum GC 23-05 (the "Memo"), the General Counsel KO'd such provisions (for the time being).

The NLRB Comes Out Swinging in McLaren

In McLaren, the NLRB analyzed what had been thought to be garden-variety non-disparagement and confidentiality provisions included in severance agreements, and concluded that each of the following infringe on an employee's right to engage in protected concerted activity under Section 7 of the NRLA:

Non-Disparagement. 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 and affiliated entities and their officers, directors, employees, agents and representatives.

Confidentiality. 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. At all times hereafter, the Employee also promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee's employment.

On non-disparagement, the Board held that it, on its face, "substantially interferes with employees' Section 7 rights" and explained:

Public statements by employees about the workplace are central to the exercise of employee rights under the Act....[T]he comprehensive ban would encompass employee conduct regarding any labor issue, dispute, or term and condition of employment of the Respondent.... [E]mployee critique of employer policy pursuant to the clear right under the Act to publicize labor disputes is subject only to the requirement that employees' communications not be so "disloyal, reckless or maliciously untrue as to lose the Act's protection."

The Board similarly struck down the confidentiality clause finding it unlawful because "it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment" and explained:

The confidentiality provision has an impermissible chilling tendency on the Section 7 rights of all employees because it bars the subject employee from providing information to the Board concerning the Respondent's unlawful interference with other employees' statutory rights.... The confidentiality provision would also prohibit the subject employee from discussing the terms of the severance agreement with his former coworkers who could find themselves in a similar predicament facing the decision whether to accept a severance agreement.

McLaren overturned the NLRB's prior decisions in Baylor University Medical Center and IGT d/b/a International Game Technology, both issued in 2020, which abandoned prior precedent in finding that offering similar severance agreements to employees was not, in and of itself, unlawful. The McLaren Macomb decision, in contrast, holds that simply offering employees a severance agreement that requires them to broadly give up their rights under Section 7 of the Act violates Section 8(a)(1) of the Act. The Board observed that the employer's offer is an attempt to deter employees from exercising their statutory rights when employees may feel they must give up their rights to get the benefits provided in the agreement.

The NLRB Doesn't Pull Any Punches in its Memo

The NLRB did not stop there and followed McLaren with the Memo, delivering a knockout punch by providing guidance to all NLRB Field Offices about how to interpret McClaren and the implications of that decision. Here is the blow-by-blow:

  • McLaren is retroactive prior to its February 21, 2023 date, and may go back to the NLRA's 6-month statute of limitations since the enforcement of an illegal agreement may constitute a "continuing violation." Specifically, while an unlawful offer of severance would be subject to the 6-month statute of limitation, attempted enforcement would restart the clock as a continuing violation. This includes to any overly broad provision in an employer communication to employees that may impact Section 7 rights, including pre-employment offer letters.
  • Employees may not "broadly waive their rights under the NLRA." This means that general releases and promises not to sue that may go beyond employment claims and matters as of the effective date of the severance agreement, such as non-competes and other restrictive covenants, may violate Section 7 rights.
  • An employer may violate the NLRA by offering an employee a severance agreement, regardless of whether the employees actually sign the agreement.
  • Lawful severance agreements may be used, but only if they do not contain "overly broad provisions that affect the rights of employees to engage with one another" to aid their working conditions.
  • Non-disparagement clauses must be narrowly tailored such that they only cover defamatory statements. This means that it would only limit 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.
  • Similarly, confidentiality clauses must be narrowly tailored to restrict "the dissemination of proprietary or trade secret information for a period based on legitimate business justifications."
  • While an employer may include a savings clause (e., "nothing shall be interpreted or construed to prevent you from exercising your NLRA rights or otherwise from engaging in concerted protected activity") to save an otherwise unlawful provision, it would have to lay out all the rights an employee otherwise has under the NLRA to ensure no other rights are being repressed.
  • McLaren applies to current and former employees.
  • Notably, while the NLRA does not technically cover "supervisors," McLaren may apply if the employer is retaliating against the supervisor for refusing to commit an unfair labor practice against employees. This odd situation could conceivably occur if the supervisor's severance agreement prevented him from participating in the NLRB process, e., being interviewed or providing testimony in an unfair labor charge case.

While the guidance in the Memo itself was bare-knuckled enough, the General Counsel went on to explain her belief that other commonly found employment provisions such as non-competition, non-solicitation, anti-raiding, covenants not to sue, broad releases of liability, cooperation requirements, and others, would interfere with an employee's ability to exercise their Section 7 rights, indicating those provision in employee policies and agreements may soon be in the ring as the main event. Thus, the NLRB seems poised to join the Federal Trade Commission in delivering a fatal blow to non-competes (at least for now).

Employer Takeaways: The Memo is just a memo and does not carry the weight of law, but since the Memo was issued to all Field Offices, it does demonstrate how the NLRB will operate at the local level in the future. The magnitude of the potential impact of the policy change cannot be understated. While the Memo's guidance will be litigated, the reality is that the NLRB is currently targeting standard employment contract provisions and employer protections, such that provisions related to severance agreements may be challenged under McLaren. It is worth noting that NLRB decision tends to sway back and forth depending on the administration in power. However, for now, the Democratic-majority NLRB has taken the gloves off regarding contractual clauses that interfere with an employee's Section 7 rights. Employers are certainly not out for the count, as the McLaren decision will certainly be challenged. However, employers seeking to comply with the decision and Memo should modify their blanket releases, non-disparagement and confidentiality clauses to ensure they do not end up going head-to-head with the NLRB.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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