Published in Florida Daily Business Review/ALM Law.com
The NLRB issued its order and decision last year in McLaren Macomb, holding that employers violate the NLRA by enforcing — or even offering — severance agreements containing overly broad confidentiality and non-disparagement provisions. This decision puts employers at a greater risk of unfair labor practice charges if they offer or attempt to enforce restrictive covenants that fail to meet its stringent standards.
A year later, the ramifications of McLaren Macomb are still developing.
Although the NLRB General Counsel issued a memorandum shortly after McLaren Macomb was decided, that memorandum expanded the scope of that opinion beyond confidentiality and non-disparagement provisions in severance agreements, raising more questions for employers.
Employers may get some clarity about the outlook and legality of certain restrictive covenants, however, through the resolution of a petition for review and cross-petition for enforcement of McLaren Macomb filed in the United States Court of Appeals for the Sixth Circuit.
Oral argument for those petitions is set for later this month.
Proactive Steps for Employers in The Meantime
While it is possible that a favorable ruling for McLaren Macomb could render the NLRB’s decision unenforceable in the Sixth Circuit and persuade other federal circuit courts to rule the same way, the NLRB could still try to enforce orders applying McLaren Macomb in other jurisdictions unless the Supreme Court overturns it.
Therefore, several of the recommendations made following the issuance of McLaren Macomb remain worthwhile practices for employers. Specifically, employers should if they have not already, take the following proactive measures:
- Evaluate Value of Restrictive Covenants: Employers should critically assess the necessity and value of including restrictive covenants in agreements with non-management, non-supervisory employees. Enforcing and maintaining these agreements involves substantial costs. If these provisions offer little or no value when considered in the context of specific positions, employers may opt to remove them to avoid potential NLRB compliance issues and the associated expenditure of time and resources.
- Carefully Consider Language in Existing Agreements: For employers who wish to continue utilizing restrictive covenants to protect their business interests, it is crucial to revisit existing employment agreements for non-supervisory, non-managerial employees in light of current developments to avoid legal exposure and ensure the enforceability of those protections. As referenced above, continuing to use the same form or language from previous agreements without meaningful review could result in an unfair labor practice charge under McLaren Macomb.
- Consult with Experienced Counsel: Given the shifting nature of this issue, employers should consult with experienced legal counsel to keep abreast of the latest developments and any potential effects on their employment agreements, policies, and practices.
Further Breakdown of the Ruling in McLaren Macomb
McLaren Macomb scrutinized non-disparagement and confidentiality provisions contained in a severance agreement offered to furloughed employees. Specifically, the NLRB analyzed a non-disparagement provision that prohibited employees from making “statements to other employees or to the general public which could disparage or harm the image of the employer, its parent and affiliated entities, and the employer’s officers, directors, employees, agents and representatives.”
The NLRB concluded that this non-disparagement term was unlawful because it “broadly prohibited” employees from discussing wages, hours, working conditions, and labor disputes. The NLRB also took issue with the severance agreement’s confidentiality provision, which prohibited employees from disclosing the terms of the severance agreement to “any third person,” with limited exceptions. The NLRB found that this provision was unlawful because it precluded employees from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including unions, and the NLRB, about their employment.
Ultimately, the NLRB determined that these provisions had a reasonable tendency to interfere with employees’ rights under Section 7 of the NLRA, which permits employees to engage in concerted activities for their mutual aid and protection.
NLRB General Counsel's Memorandum Regarding the Scope of McLaren Macomb
Following the McLaren Macomb decision, the NLRB's General Counsel issued a memorandum confirming the NLRB’s intent to apply its analysis in McLaren Macomb retroactively. The memorandum also suggested that the McLaren Macomb ruling could extend beyond severance agreements to include non-compete clauses, non-solicitation clauses, and no-poaching clauses found in various employment documents such as cooperation agreements, employment agreements, offer letters, and pre-employment communications.
Arguments Presented in Cross-Petitions Filed by McLaren Macomb and NLRB
In its petition to review the NLRB’s final order, McLaren Macomb contends that the NLRB’s decision to invalidate the severance agreement based on its neutral confidentiality and non-disparagement clauses was an erroneous departure from well-established legal precedent.
Specifically, McLaren Macomb asserts the following arguments in its petition:
- The NLRB's decision was not consistent with its prior precedent and was, in fact, a case of first impression, as the NLRB had never previously found that offering facially neutral confidentiality and non-disparagement provisions in a severance agreement was a “per se” violation of the NLRA without additional circumstances.
- The NLRB incorrectly overruled its previous opinions, which had considered the totality of circumstances surrounding the execution of such agreements, such as the absence of any infringement on employees’ Section 7 rights or discriminatory practices by the employer.
- It was improper for the NLRB to overlook key provisions in the severance agreement, specifically the administrative agency exception in the confidentiality provision, which allowed agencies like the NLRB to proceed with investigations or actions consistent with their jurisdiction.
- The NLRB neglected to apply the required balancing test between employee and employer rights as mandated by Supreme Court precedent, improperly overlooking McLaren Macomb’s legitimate interests in protecting confidential information, preserving its reputation, and ensuring employee loyalty.
- The NLRB violated the judicial restraint doctrine by introducing and ruling on issues beyond what was necessary to resolve the case.
After McLaren Macomb filed its petition for review, the NLRB’s General Counsel cross-petitioned the court to enforce the NLRB’s final order, asserting the following arguments in its cross-petition:
- The NLRB correctly reverted to its longstanding standard for evaluating severance agreements, which scrutinizes the explicit terms of an agreement to determine whether they could reasonably be interpreted to infringe upon employees’ rights under the NLRA without considering the employer’s intentions or the context in which the agreement was offered. The NLRB asserts that looking at these circumstances is unnecessary to find the employer’s proffer unlawful because the coercive impact of an agreement can be “inherent in the agreement itself.”
- The NLRB reasonably returned to its prior view that an employer’s proffer of coercive severance terms is unlawful even if not accepted by an employee because a contrary approach would “create an incentive for employers to proffer severance agreements with unlawful provisions” without consequence unless the employee signed the agreement and subjected himself or herself to the unlawful requirements.
- The decision acknowledged that not all severance agreements that impact Section 7 rights violate the NLRA, and that agreements with a narrowly tailored waiver could withstand scrutiny. Thus, according to the NLRB, McLaren Macomb’s repeated description of the NLRB’s holding as a “per se” approach prohibiting “any type of confidentiality and non-disparagement clause in severance agreements” mischaracterizes the NLRB’s decision. Nonetheless, the NLRB asserts that the NLRB was not required to state the complete scope of permissible waivers in its decision, given its finding that the provisions in the severance agreements were unlawfully overbroad.
Implications of the Sixth Circuit’s Forthcoming Decision
The NLRB has consistently taken the position that it is bound only by opinions interpreting or applying the NLRA by the Supreme Court of the United States. Thus, regardless of the Sixth Circuit’s decision, the NLRB may continue to follow McLaren Macomb unless and until the Supreme Court overturns it. However, the Sixth Circuit’s forthcoming ruling will have a binding effect in the Sixth Circuit, and it may act as persuasive authority for other courts ruling on similar NLRB decisions in the future.
A Sixth Circuit ruling in favor of the NLRB would mark the Sixth Circuit’s approval of McLaren Macomb and confirm the approach set out in that decision, which permits the NLRB to assess potential NLRA violations by looking solely at the language of the severance agreements without regard to the circumstances in which the employer proffered the severance agreements. Such a ruling would also confirm the Sixth Circuit’s approval of the NLRB’s holding that employers can be found in violation of the NLRA if they offer severance agreements containing provisions that the NLRB interprets as discouraging participation in other employees’ assertions of Section 7 rights under the NLRA or NLRB processes.
Other than the provisions of the severance agreements at issue in McLaren Macomb, and given the memorandum issued by the NLRB’s General Counsel, it is not clear precisely what other types of employment agreements or contractual provisions the NLRB may deem as unlawful in the future or if the Sixth Circuit will provide any guidance on that issue. On the other hand, a ruling in McLaren Macomb’s favor would result in a return to more employer-friendly precedent in the Sixth Circuit, precluding the Sixth Circuit’s enforcement of any NLRB decisions that relied on McLaren Macomb and did not involve the NLRB’s assessment of circumstances beyond the plain language of the severance agreement, such as whether there was an absence of any infringement on employees’ Section 7 rights or discriminatory practices by the employer.
Although the Sixth Circuit’s forthcoming ruling will not be binding in other jurisdictions, there is a possibility that McLaren Macomb, if faced with an unfavorable ruling, may petition for certiorari review with the United States Supreme Court, thus creating a legal pathway to halt the courts’ and NLRB’s application of McLaren Macomb in all jurisdictions.
Looking Forward
Employers should closely monitor the outcome of the proceedings before the Sixth Circuit as it could offer insight into the outlook of certain restrictive covenants following McLaren Macomb. A decision in favor of the NLRB could lead to increased scrutiny of employment agreements and potential legal challenges, while a decision in favor of McLaren Macomb could provide certain employers with more leeway to employ restrictive covenants to protect their business interests in the future.
Staying informed and proactive will be essential for employers to adapt to the evolving legal landscape and minimize the risk of future legal disputes related to unfair labor practices.
About Our Authors
Erica Pope is an Associate on the Adams and Reese Labor and Employment Team, practicing in the law firm’s Tampa office. Erica focuses on management-sided defense, representing employers in various aspects of state and federal court litigation and pre-suit administrative proceedings. This representation involves defending employers against allegations of discrimination, retaliation, harassment, wage and hour violations, and other related issues.
Ben Bard is a Partner on the Adams and Reese Labor and Employment Team, practicing in the law firm’s Tampa office. He is board certified by The Florida Bar in Labor and Employment Law. Ben represents employers in litigation before state and federal courts, as well as before federal and state agencies, and he also advises employers proactively through the drafting and reviewing of policies, handbooks, employee agreements, among other best practices.