Over the last several months, the National Labor Relations Board (NLRB) has taken a paring knife to employers’ ability to strategically use separation agreements with employees. On February 21, the NLRB reinstated its prior standard that deemed confidentiality and non-disparagement clauses in separation agreements with employees to violate federal labor laws when they have a reasonable tendency to interfere with employees’ rights under the National Labor Relations Act (NLRA). On March 22, the Office of the General Counsel for the NLRB issued GC Memorandum 23-05 (the Memo) to provide further guidance on how the NLRB’s February 21 decision should be interpreted.

When an employer and employee relationship is severed, the two parties sometimes agree on severance payments in exchange for confidentiality and non-disparagement terms, and waiver of liability for any alleged employment claims. Usually, both parties see these agreements as a valuable tool to assure clarity, certainty, and clear next steps now that the employer-employee relationship has ended. The Memo seeks to eliminate the employer and employee’s longstanding ability to decide what terms are included in those agreements.

The Guidance

At a high level, the Memo declares that any clause within a separation agreement that prevents or discourages employees or former employees from advocating for a better workplace or trying to advance their interests as employees violates the NLRA. According to the Memo, broad confidentiality and non-disparagement provisions within a separation agreement violate the NLRA. The Memo makes clear that even offering a separation agreement with these provisions is enough to violate the NLRA. Importantly, the Memo makes clear that separation agreements, as a general proposition, are still permissible.

What else do you need to know?

• A narrowly tailored confidentiality provision focused on trade secrets, proprietary information, and other protectable confidential information designed to protect a legitimate business interest may still be included. Employers may also still keep the financial terms of any separation agreement confidential.
• A narrowly tailored non-disparagement provision limited to statements that would amount to defamation may still be included.
• Supervisors are generally not covered under the Memo. This means that employers may still enter into separation agreements with managers, executives, and supervisors that include traditional confidentiality and non-disparagement provisions. Under the NLRA, a supervisor is any individual who has the authority to hire, transfer, suspend, promote, discharge, assign, reward, or discipline other employees.
• The Memo is retroactive, meaning that separation agreements entered into ten months ago – or ten years – are covered and may have provisions declared invalid and unlawful.
• If a separation agreement contains an unlawful provision, the whole agreement is not automatically invalid. The Memo makes clear that the enforcement arm of the NLRB will “seek to have [the unlawful provisions] voided out as opposed to the entire agreement, regardless of whether there is a severability clause or not.” (emphasis added).
• While not explicit, this guidance could apply to any agreement between an employer and employee (or former employee). This means that even after the employee has left her employment and filed a lawsuit, a settlement agreement to resolve that lawsuit may be covered by the Memo. The Memo made clear that the NLRA provides the same protection to former employees as it does to current employees.

Next Steps

While we await the substantive implementation of the Memo, employers may decide how to proceed based on their own risk tolerance. There will likely be litigation in the coming months and years over the legality of the Memo, but a more risk-averse employer may choose to apply the Memo as written in its employment policies when handling separation and other employment agreements. The most conservative option would be to implement agreements that only require confidentiality for trade secrets, proprietary information, and the financial terms of the agreement, forbid defamatory statements, and provide notice to all employees and former employees of the Memo indicating the NLRB’s new perspective and that certain clauses in prior agreements may not be enforceable.