04.11.2023 | Newsletters

Confidentiality and Non-Disparagement Provisions May Violate the NLRA

By Charles R. Hellstrom

In McLaren Macomb, the National Labor Relations Board (“NLRB”) held that an employer violates the National Labor Relations Act (“NLRA”) when it offers employees a severance agreement with provisions that potentially restrict employees’ exercise of their rights under Section 7 of the NLRA, which applies to most employers, whether unionized or not.

Section 7 of the NLRA guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” as well as the right “to refrain from any or all such activities.” Section 8 makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7.”

The severance agreement at issue included non-disparagement and confidentiality clauses that the NLRB found to be unlawful. The confidentiality clause permitted very limited disclosure of the terms of the agreement (e.g., to spouses, to obtain legal or tax advice, or to comply with a court order). Meanwhile, the non-disparagement clause contained no limiting language and prevented the employee from making statements to other employees or the general public, which could disparage or harm the employer’s image.

The NLRB ruled that this type of severance agreement violates the NLRA because it conditioned the employees’ receipt of severance on agreement to these unlawful restrictions.

A month after the McLaren Macomb decision, the NLRB’s general counsel issued a memo with guidance on the decision, including some of the following key points:

  1. The decision applies retroactively to existing severance agreements.
  2. Severance agreements with limited confidentially and non-disparagement clauses may still be lawful if the following conditions are met:
    • Confidentiality clauses must be “narrowly-tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications.”
    • Non-disparagement provisions may be lawful if they are “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.”
  3. Overly-broad confidentiality or non-disparagement clauses are unlawful regardless of whether it is the employer or the employee who requests the inclusion of those clauses.
  4. Severance agreements should not be found to be void in their entirety because they include unlawful provisions. That is, the NLRB will generally seek to void only those provisions that it determines to be unlawful, instead of voiding the entire agreement.
  5. In limited circumstances, this decision could apply to severance agreements offered to employees who are supervisors.

Employers should carefully review their severance agreements to ensure they comply with this decision. Further, departing employees who ask for confidentiality and non-disparagement clauses should be advised of the impact of this decision.

Related practice team: Labor and Employment

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