|
The National Labor Relations Board (“NLRB”) recently weighed in on the issue of whether an employer may include broad non-disparagement and confidentiality provisions in employee separation agreements. Reversing a Trump-era labor board decision, the NLRB ruled that most such restrictions are unlawful under the federal union management law known as the National Labor Relations Act (“NLRA”). In a February 21, 2023 decision involving a healthcare employer, the NLRB ruled that such clauses are illegal unless the clauses are narrowly tailored provisions that “respect the range of rights” which employees enjoy under the NLRA. In fact, the NLRB went so far as to rule that merely asking an employee to sign a severance agreement containing common non-disparagement or confidentiality clauses violates the NLRA, even if the employee does not accept it.
Employers are often unaware that the NLRA applies to most private employers, even if no part of the workforce is unionized. Under the NLRA, employees have so-called “Section 7 rights” that protect their right to engage in “concerted activities for the purpose of mutual aid or protection”. According to longstanding NLRB precedent, these concerted activity rights allow employees to freely discuss their wages, hours, and working conditions among themselves, with union organizers and government officials, to name a few. These rights also allow employees to freely express their opinions about an employer and the working conditions. According to the NLRB, any restriction on those rights (e.g., in an employee handbook or separation agreement) is unlawful. According to this new NRLB decision, most non-disparagement and confidentiality provisions found in separation agreements run afoul of this law.
This is a huge change in the law from what it was under the Trump-era NRLB. Previously, the Trump-era NRLB ruled that most common non-disparagement and confidentiality clauses in severance agreements did not violate the NLRA as long as they were not offered under coercive circumstances. Such coercive circumstances could include evidence that the employee was unlawfully discharged, the existence of other unlawful activity, or whether the agreement was offered during a labor dispute. Absent such circumstances, non-disparagement and confidentiality clauses were lawful because the agreement was entered into voluntarily and pertained to post-employment activity. This had been the law until the Board’s recent decision in McLaren Macomb, 372 NLRB No. 58 (2023).
In McLaren Macomb, a hospital laid off eleven employees during the height of the COVID pandemic and presented them with severance agreements. The agreements contained standard language, including the following confidentiality and non-disparagement terms:
-
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. [omitted] 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 the Employer, its parents and affiliated entities and their officers, directors, employees, agents and representatives.
Overturning the previous decisions from the Trump-era, the NLRB ruled that both clauses violate the NLRA because they prohibit employees from exercising their statutory rights to discuss the terms and conditions of work. Further, the NLRB held that these clauses have a “chilling” effect on employees filing unfair labor practices charges and participating in NLRB investigations. Unlike previous NLRB decisions focusing on the circumstances under which the agreements were presented, the NLRB stated that the surrounding circumstances are inconsequential when the agreement itself is unlawful. The NLRB explained that simply offering an agreement where the receipt of benefits is conditioned on the relinquishment of rights protected under the NLRA is unlawful unless the provisions are narrowly tailored.
Questions Still Remain After the Decision
The McLaren Macomb decision still leaves many questions unanswered. One question is whether the decision applies retroactively to agreements signed before February 21, 2023 (the date of the decision). Another is whether it applies to just severance agreements. A third question is what will it take to satisfy the Board’s new “narrowly tailored” definition.
On March 22, 2023, the General Counsel for the NLRB, Jennifer Abruzzo, issued a memorandum interpreting the impact of the decision. As Ms. Abruzzo operates as the chief prosecutor of the NLRA and dictates which charges the NLRB’s regional offices pursue, her interpretation of the decision is critical. Below are some highlights from the memorandum that employers should be aware of:
-
The decision is not limited to severance agreements and applies to all unlawful non-disparagement and confidentiality provisions (e.g., lawsuit settlement agreements, arbitration agreements, offer letters, employee handbooks, etc.).
- Just asking an employee to sign an agreement with an unlawful non-disparagement or confidentiality provision is an unfair labor practice.
-
While supervisors are generally not protected by the NLRA, the decision may apply to supervisors in the following contexts: (1) an employer may not retaliate against a supervisor for refusing to take an action related to an unlawful agreement; and (2) an employer may not present/offer an unlawful agreement to a supervisor that prevents them from participating in NLRB proceedings.
-
The decision applies retroactively (i.e., to actions that took place before February 21, 2023) and having asked an employee to sign such an agreement or seeking to enforce an older agreement formed outside the six-month statute of limitations is an unfair labor practice.
- If the non-disparagement and/or confidentiality provisions of an agreement are found unlawful, the NLRB should seek to void only those portions of the agreement and leave the remaining provisions intact.
- Neither employees nor their union representatives may waive employees’ rights regarding such agreements. Thus, including language that the employee requested the provisions will not save an otherwise unlawful agreement.
-
Confidentiality provisions may require non-disclosure of the financial terms of the agreement and/or restrict the dissemination of proprietary or trade secret information.
-
Non-disparagement provisions must be limited to prohibiting only “maliciously false” (i.e., defamatory) statements. Anything less is unlawful.
-
While “savings clauses” or disclaimers will generally not save unlawful language in an agreement, Ms. Abruzzo provided a lengthy nine-part description of employee rights under the NLRA which might do so.
While not covered by the McLaren Macomb decision, Ms. Abruzzo gave a sneak peek at what may be coming next when she identified the following common contractual provisions as similarly problematic: (i) non-compete clauses; (ii) no solicitation clauses; (iii) no poaching clauses; (iv) broad liability releases and covenants not to sue that go beyond the employer and the employment claims as of the date of the agreement; and (v) cooperation requirements involving any current or future investigations.
Takeaways for Employers
Employers may need to carefully review and revise their non-disparagement and confidentiality provisions in all employee agreements and policies. Agreements with supervisors and managers should also be reviewed to ensure they conform to the decision.
Employers who are more risk averse may choose to remove the confidentiality or non-disparagement clauses from their agreements altogether and advise former employees that such provisions will not be enforced. However, other employers may choose to narrowly tailor the language to satisfy the new standard used in McLaren Macomb.
Until more guidance is provided, non-disparagement clauses should be limited to defamatory statements and confidentiality provisions limited to the financial terms of the agreement as well as proprietary and trade secret information.
| 
