CONFIDENTIALITY AND NON-DISPARAGEMENT CLAUSES ARE IN JEOPARDY
SEVERANCE AGREEMENTS INCLUDING CONFIDENTIALITY AND NON-DISPARAGEMENT CLAUSES ARE IN JEOPARDY, INCLUDING FOR PAST AGREEMENTS WITH EMPLOYEES
We have been writing about the risks of using boilerplate provisions in agreements.
Non-disparagement clauses and confidentiality clauses in employee severance agreements are included. Why?
The federal National Labor Relations Act (“NLRA”) protects employees’ right to discuss the terms and conditions of their employment. Previously, the government division (“NLRB”) board overseeing the NLRA decided that confidentiality and non-disparagement clauses in settlement agreements were unlawful only when they (a) prohibited employees from cooperating with an NLRB investigation, (b) kept employees from litigating an unfair labor practice charge, or (c) where the circumstances surrounding the severance evidenced animus towards employees’ lawful exercise of NLRA’s Section 7 rights. But in a recent case the NLRB decided that the non-disparagement and confidentiality provisions that employers typically include in severance agreements are unlawful for non-manager/non-supervisor employees. In this case, the hospital employer McLaren terminated some union employees and offered them a severance agreement that included:
•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 spouses, or as necessary to professional advisors for 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-Disparagement: “At all times hereafter, the Employee agrees not to make statements to Employer’s employees or 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 Clause: The NLRB stated that the confidentiality provision broadly prohibited employees from disclosing any information regarding the terms of the severance agreement and thus, such a provision could prevent an employee from discussing the terms of the severance agreement with co-workers who were also deciding whether to accept the severance, and it would “reasonably tend to coerce the employee from filing an unfair labor practice charge or assisting [a NLRB] investigation into the [employer’s] use of the severance agreement.” Per the NLRB this provision was an unfair labor practice and violated federal labor law.
Non-Disparagement Clause: The NLRB stated that “[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the [NLRA]” and, as a result, the non-disparagement provisions violated an employee’s Section 7 rights because they prevented employees from making statements that the employer engaged in unfair labor practices and could chill an employee’s cooperation with an NLRB investigation.
Overall, the NLRB found the severance terms so onerous and the penalties for non-compliance so great (injunctive relief, attorney fees, actual damages, etc.) that it announced that the employer’s merely proposing a severance agreement with what the NLRB considers to be an unlawful severance provision violates the NLRA and that it is “immaterial” whether the employee actually accepts the agreement.
March 22, 2023, the NLRB issued a guidance memo for employers on these issues :
•McLaren has “retroactive application” as it applies to severance agreements signed before February 21, 2023. Further, the six-month statute of limitations to bring an unfair labor practice charge relating to an overly broad severance agreement would be construed as a “continu[ing] violation” by virtue of the employer’s “maintaining and/or enforcing a previously-entered severance agreement with unlawful provisions…,” resulting in the statute of limitation never ending.
•While supervisors are not generally protected by the NLRA, it would protect from retaliation a supervisor who refuses to commit an unfair labor practice by “proffer[ing] an unlawfully overbroad severance agreement[.]”
•Generally, the voidability of a severance agreement with overly broad provisions would be decided on a case-by-case basis. However, NLRB “Region[al offices] generally make decisions based solely on the unlawful provisions and would seek to have those voided out as opposed to the entire agreement….,” which is good news for employers that the NLRB will blue line the agreement.
•If the employee requests an overly broad confidentiality or non-disparagement provision, it would not change the analysis because “the Board protects public rights that cannot be waived….” and it is “irrelevant” whether an employee actually signs the severance agreement because, in the NLRB’s view, merely offering a severance agreement with an overly broad provision is unlawful.
•Confidentiality agreements may still be lawful so long as they are “narrowly-tailored to restrict dissemination of proprietary or trade secret information for a period of time based on legitimate business justification[.]”
•Non-disparagement agreements may still be lawful so long as they are narrowly-tailored and “limited to employee 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[.]”
Other Common Provisions May Be Unlawful
•The NLRB may invalidate other common provisions in settlement agreements as well because it believes they also may be unlawful, such as non-compete clauses, non-solicitation clauses, no-poaching clauses, “broad liability releases and covenants not to sue that may go beyond the employer and/or may go beyond the employment claims and matters as of the effective date of the agreement[,]” and cooperation clauses involving the employer “that affects the employee’s right to refrain under Section 7, such as if the employee was asked to testify against co-workers that the employee assisted with filing a ULP charge” are all in the NLRB’s sights for future cases.
Things change. Here at Epps & Coulson, LLP, our employment attorneys keep on top of matters for you. We are ready to help you plan and grow. Please feel free to contact Dawn at: firstname.lastname@example.org for any questions.
Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney. It is likely considered advertising. Epps & Coulson, LLP encourages you to call to discuss these matters as they apply to you or your business.
EPPS & COULSON, LLP
Attorneys admitted to practice in California, New York, Colorado, Texas, and Oregon
Read the NLRB Guidance on McLaren HERE