NLRB Strikes Down Overly Broad Severance Agreement Provisions for Non-Supervisory Employees

Earlier this year, the National Labor Relations Board (the NLRB) issued a decision in McLaren Macomb (McLaren) holding that employers may not offer non-supervisory employees severance agreements that require such employees to agree not to disparage the employer or to be bound by confidentiality restrictions with respect to the terms of the severance agreement. 

Who are non-supervisory employees?

The answer to this question is not always clear cut and should be closely reviewed by your attorney team prior to offering a severance package with non-disparagement and confidentiality provisions. The National Labor Relations Act (the Act) defines “supervisors” as employees who exercise authority over other workers, using “independent judgment”. To “exercise authority” under the Act includes acts such as hiring, transferring, suspending, laying off, recalling, promoting, discharging, assigning, rewarding, disciplining, or directing other employees. In startups, most employees wear multiple hats, so it is common that a person who would not typically fall in a supervisory role based on title and experience, may still meet the criteria under the Act, which would potentially exempt them from the ruling under McLaren. 

What are the implications for startup companies? 

• Overly broad non-disparagement and confidentiality clauses now violate the rights of non-supervisory employees (unionized and non-unionized) under Section 7 of the Act. According to guidance by the NLRB General Counsel, any such clauses should be “narrowly-tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications.”
• Guidance from the NLRB General Counsel clarifies that the decision is intended to apply retroactively to existing agreements that were entered into prior to February 21, 2023. Employers can no longer enforce these types of provisions against non-supervisory employees. In certain cases, employers may choose to contact former employees subject to agreements with overly broad provisions to advise them that those provisions are void and that the employer will not enforce such provisions or seek penalties for any violations. 
• Additional Guidance from the NLRB General Counsel clarifies that NLRB will seek to only void the unenforceable provisions and not entire agreements even in cases where the agreement does not include a severability provision, however, nothing is guaranteed on this front so companies should implement the best practices to be compliant with the new restrictions.
• Employers should use caution in offering severance based on an outdated template agreement.

What should I do now?

The best practice would be to consult with your attorney team prior to offering severance to a departing employee to determine whether the employee is supervisory or non-supervisory, and therefore protected by the NLRB’s decision in McLaren. If non-supervisory, then your company’s leadership should decide whether to exclude or narrowly tailor the non-disparagement and confidentiality provisions to be in compliance with the McLaren decision. Please contact SPZ with any questions.