Recent NLRB Decision Significantly Limits Employers’ Use of Confidentiality and Non-Disparagement Clauses in Severance Agreements
The National Labor Relations Board (NLRB) issued an important decision this week that dramatically curtails employers’ abilities to lawfully include confidentiality and non-disparagement clauses in severance agreements. Under this decision, the presence of such clauses in severance agreements can constitute an Unfair Labor Practice (ULP) due to their tendency to “chill” the exercise of employees’ rights to band together to improve the workplace (so-called “Section 7” rights under the National Labor Relations Act (NLRA)).
What does this decision mean for your business? Should you change your future severance agreement practices as a result of this decision? Do you need to be concerned about your existing severance agreements? Let’s dive into the details with some questions we’re hearing from our clients.
Q: My employees aren’t in a union. Does this decision even apply to my business?
A: Yes. The NLRA governs both unionized and non-unionized workplaces. All employees have the right to decide to join together to advance their interests as employees under Section 7 of the NLRA, and employers who interfere with or restrain these rights can be charged with unfair labor practices under the Act.
Q: Does this decision apply to severance agreements with executive employees?
A: Generally speaking, no. The NLRA excludes supervisors (defined as any individual who can hire, fire, promote, or exercise independent judgement) from the definition of “employee” under Section 7. There are some exceptions to this rule, and the determination of whether someone is a supervisor can be a fact-intensive inquiry.
Q: What if I continue to include confidentiality and non-disparagement clauses in my severance agreements with employees but I just don’t seek to enforce them?
A: This week’s decision makes clear that simply “proffering” a severance agreement that contains these clauses is itself a ULP because conditioning receipt of benefits on acceptance of these terms which limit employees’ Section 7 rights is itself a coercive practice.
Q: Could some creative drafting help distinguish my confidentiality and non-disparagement clauses from those at issue in this case?
A: Maybe? (Don’t you love when a lawyer says that…) Some things to consider:
- Both of the clauses at issue in this case were extremely broad and did not include a disclaimer (something to the effect of “these provisions do not prevent you from enforcing your Section 7 rights…”). If such language is not already a part of your standard severance agreement, it should be now.
- Providing a definition for “disparagement” might have saved this employer, but it’s equally likely that any such definition would need to be so narrowly tailored to satisfy the NLRB that it would basically amount to an anti-defamation clause that would only be actionable if the former employee’s statements were actually false. (In which case, it’s pretty worthless since you don’t need a contract to sue someone for defamation.)
- Similarly, employers could more narrowly define the confidentiality provision (in this case, disclosure to “any third-party” was a violation), but any definition that could be construed to include coworkers or labor unions will likely violate the NLRA, so, again, not very helpful for employers, since it would no longer prevent former employees from discussing their severance agreements with their former coworkers.
- The NLRB will likely issue General Counsel advisory memos offering specific examples of permissible severance agreements in the coming months, which will provide additional guidance to drafters.
Q: Ok, but what about my existing severance agreements that have these clauses? Do I need to rescind them? Can I enforce these clauses?
A: Several important points here. First, the NLRB’s rules prevent employees from bringing charges that don’t relate back to a violation that occurred within the past six months, so severance agreements that are more than six months old aren’t likely to be the basis for a successful claim that merely including the clauses is itself a ULP. Second, if you drafted the severance agreement at a time when the law permitted these provisions, you may have a defense that the new rule can’t be applied retroactively. However, I do see this decision dramatically limiting the practical enforceability of these clauses. For example, if I’m representing an employee who has been sued for violating confidentiality or non-disparagement provisions in a severance agreement, you can bet I will now be arguing that the NLRB has made clear that such clauses are violations of my client’s Section 7 rights and use that to my client’s advantage in settlement negotiations.
Q: What does this decision mean for confidentiality/NDA provisions in other, non-severance agreements I may have with my current and former employees? Does this ruling affect my employee handbook or stand-alone workplace policies?
A: Confidentiality and NDA agreements with existing employees need to be narrowly tailored to protect confidential information, trade secrets, and intellectual property in order to steer clear of violations of the NLRA. Any agreement or policy that appears to prevent employees from discussing workplace misconduct is going to be suspect.
This week’s NLRB decision is part of a steady shift, happening on both the state and federal level, towards greater rights for workers. In January 2023, the Federal Trade Commission issued a notice of proposed rulemaking related to restricting the use of non-competes. The NLRB also currently has another case before it in which it is considering adopting a new legal standard to determine whether employer work rules violate the NLRA.