Confidentiality and Nondisparagement Provisions in Severance Agreements Held Unlawful by the NLRB

The National Labor Relations Board (the “Board”) recently held that that the “mere proffer” of severance agreements with boilerplate type confidentiality and nondisparagement provisions violate the National Labor Relations Act (the “Act”) (McLaren Macomb, 372 NLRB No. 58 (2023)). The Act is the federal law that authorizes and regulates unionized workplaces. Significantly, however, it applies to nonunionized workplaces as well. The Act affords employees the right to freely discuss the terms and conditions of their employment and engagement in concerted activity, which are referred to as “Section 7 rights”. In McLaren, the Board found that the confidentiality and nondisparagement provisions interfere with or restrain the exercise of employee’s Section 7 rights, and therefore violate the Act, otherwise known as an unfair labor practice.

Although the Act applies to nonunionized workplaces, its protections do not extend to supervisory or managerial employees. Thus, severance agreements with employees who have supervisory authority can include broad nondisparagement and confidentiality provisions without running afoul of the Act.

Confidentiality and Nondisparagement Provisions

Confidentiality and nondisparagement provisions have become standard in most severance agreements, but these very provisions have been found to violate the Act. The specific clauses in McLaren were:

Confidentiality Agreement. 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.

Non-Disclosure. At all times hereafter, the Employee 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 with, by reason of the Employee’s employment. 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.

Most severance and similar separation and/or settlement agreements contain substantially similar provisions.

What Does this Decision Mean for Employers?

Employers would be well-served by reviewing with counsel the provisions in agreements tendered to nonsupervisory employees, particularly the confidentiality and nondisparagement clauses, to assess whether they may interfere with Section 7 rights. Depending on an employer’s appetite for risk, industry, its workforce, and other factors, their agreements may need to be revised and updated in order to pass muster under the Act.

Notably, McLaren expressly states that it “restores prior law”. The Board is referring to its own rulings before the Trump-era Board decisions in 2020 which generally permitted confidentiality and nondisparagement clauses as long as they were not proffered under coercive circumstances. While the McLaren decision resurrects its prior standard, mere reliance on pre-2020 disclaimers such as “nothing in this severance agreement is intended to interfere with Section 7 rights under the Act” may not be sufficient under McLaren.

Moreover, employers need to consider the current climate. Since the #MeToo movement, nondisparagement and confidentiality provisions have been heavily scrutinized and been the subject of state and federal legislation. Additionally, the Equal Employment Opportunity Commission recently took the position that a nondisparagement provision in a separation agreement was unlawful. From a bigger picture perspective, from paid family leave laws to efforts to restrict or curtail noncompetes, government agencies and legislators have been advancing more and more employee protections.

Although the Board’s decision included no guidance on what kind of provisions would be lawful, it did focus on the breadth of the confidentiality and nondisparagement proscriptions. In doing so, it described how the provisions violated the employees’ Section 7 rights, including, for example, that the provisions prevented employees from making any statements that the employer violated the Act, had no temporal limits, applied to affiliates and parents, and prevented employees from assisting in Board investigations.

More broadly, the Board emphasized that the agreement’s proscriptions have a “chilling tendency” that extends to assisting coworkers, including cooperation with the Board’s investigation and litigation of unfair labor practices and raising or assisting “complaints about their employer with their former colleagues, the union, the Board, any other government agency, the media, or almost anyone else”.

This begs the question whether including carve-outs for the rights called out by the Board would save the provisions and if so, whether all of them would be necessary. Of course employers also must balance their need for broad proscriptions with their willingness to defend an unfair labor practice charge that certain clauses in the severance agreement violate the Act.

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03.08.2023  |  PUBLICATION: Employment Notes  |  TOPICS: Employment

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