SEVERANCE AGREEMENTS ARE IN JEOPARDY, INCLUDING PAST AGREEMENTS
SEVERANCE AGREEMENTS INCLUDING CONFIDENTIALITY AND NON-DISPARAGEMENT CLAUSES ARE IN JEOPARDY, INCLUDING FOR PAST AGREEMENTS WITH EMPLOYEES
The National Labor Relations Act (“NLRA”) protects employees’ rights to discuss the terms and conditions of their employment, including confidentiality and non-disparagement clauses in settlement agreements. However, most severance agreements contain a confidentiality clause to keep the severance and its terms from becoming known without and outside of the employer’s business. The severance agreements traditionally have also included a non-disparagement clause to keep the employee (who is being paid to abide by the severance agreement) from disparaging the employer, supervisors and others. They typically look like this:
•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.”
But on February 21, 2023, the National Labor Relations Board (“NLRB”), which governs employment issues on the federal level, decided that non-disparagement and confidentiality provisions in severance agreements were unlawful for non-managerial or non-supervisory employees. In a case brought by employee McLaren Macomb, the NLRB found that the confidentiality provision was unfair because it prevented employees from discussing the terms of the severance agreement with their co-workers and would reasonably prevent employees from filing an unfair labor practice charge or assisting an NLRB investigation.
The NLRB also found that the non-disparagement provisions violated an employee’s rights by preventing them from making statements that the employer engaged in unfair labor practices and could prevent employees from cooperating with an NLRB investigation. The NLRB’s General Counsel, Jennifer Abruzzo, appeared on the Employment Law Now podcast to answer questions about the decision’s implications. On March 22, 2023, the NLRB issued guidance for employers on the McLaren decision, stating that retroactively, the decision applies to severance agreements signed before February 21, 2023. Furthermore, the NLRB would void the severance agreements’ unlawful provisions instead of the entire agreement, and confidentiality agreements may be lawful as long as they are narrowly-tailored to restrict dissemination of proprietary or trade secret information based on legitimate business justification. The guidance also stated that offering a severance agreement with an overly broad provision was unlawful, regardless of whether an employee accepted the agreement.
More clauses are also seemingly in jeopardy: The NLRB stated that 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 other cooperation clauses may be unlawful too.
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…or plan layoffs. Please feel free to contact Dawn at: dcoulson@eppscoulson.com 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.
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