Confidentiality and non-disparagement clauses in severance agreements are deemed unlawful.
In a major decision reversing at least two prior decisions, the National Labor Relations Board (NLRB) has determined that non-disparagement and confidentiality clauses in the separation agreement that an employer gave to its employees when they were laid off, violates Federal law. See McLaren Macomb and Local 40 RN Staff Council, OPEIU, Case No. 07-CA-263041 (NLRB, Feb. 21, 2023).
When entering into separation or settlement agreements, employers routinely require confidentiality or non-disclosure agreements, which restrict employees’ ability to disclose the terms of the agreement and sometimes restrict them from disclosing any facts leading up to their separation from employment, to anyone but their lawyers and accountants. Similarly, employers also often insist on non-disparagement language, which prohibit the former employees from saying anything negative about the company, or communicating their workplace grievances to others, and subjecting them to hefty penalties should they violate those clauses, which are typically effective for their rest of their lives. This decision calls into question the validity of that practice which, virtually always, provides more significant benefits to the employers than the employees.
The risk of a former employer having to pay a corporate employer’s legal bill for violating these clauses is a particularly harsh remedy that, if enforced, could well bankrupt a typical worker.
The Federal law in question, the National Labor Relations Act (NLRA) protects the rights of employees not only to form and join unions, but also to engage in “protected concerted activities,” which includes collaborating with others to improve terms and conditions of employment. These rights are called “Section 7 rights,” falling under Section 7 of the NLRA, and extend to nonsupervisory employees in non-unionized and unionized workplaces.
In the McLaren Macomb case, the NLRB concluded that employees have the right to use administrative, judicial, legislative, and political channels, or to publicize their issues in the media, or on the internet when there is an ongoing labor dispute, and that the non-disparagement and confidentiality clauses interfered with those rights.
The NLRB wrote that “inherent in any severance agreement requiring workers not to engage in protected concerted activity is the coercive potential of the overly broad surrender of NLRA rights if they wish to receive the benefits of the agreement. (p. 7)
An appeal will most likely be filed, and many interest groups will undoubtedly seek to intervene to submit “friend of the court,” or amicus curiae briefs. In the meantime, the employment law landscape will be altered. If employers continue to insist on nondisparagement and confidentiality clauses in their separation agreements with non-supervisory employees, they risk violating the NLRA and invalidating the entire agreement, yet it is often these clauses, in conjunction with the general release of rights to sue, which drives a settlement.
At this point, it would be wise for employers to immediately cease from including confidentiality and non-disparagement clauses in their separation or severance agreements.