By Megan S. Shaked
Over the last few years, we have seen states enact various restrictions on confidentiality and nondisparagement clauses in employment agreements. These changes were made in the wake of the #MeToo movement and in an effort to reduce perceived barriers to workers’ ability to raise claims for unlawful conduct in the workplace.
Last week, the National Labor Relations Board (NLRB) ruled that a severance agreement containing nondisparagement and confidentiality provisions is unlawful under the National Labor Relations Act (NLRA).
The main issue was whether the employer violated the NLRA by offering a severance agreement to 11 bargaining unit employees it permanently furloughed. The agreement broadly prohibited the employees from making statements that could disparage the employer. The agreement also prohibited the employees from disclosing the terms of the agreement.
In examining the language of the severance agreement at issue, the Board ultimately concluded that the nondisparagement and confidentiality provisions “interfere with, restrain, or coerce employees’ exercise of Section 7 rights.” The Board reasoned that because the agreement conditioned the receipt of severance benefits on the employee’s acceptance of the unlawful provisions, the respondent’s proffer of the agreement violated the NLRA.
With respect to the nondisparagement language, the Board reasoned that because public statements by employees about the workplace are central to the exercise of employee rights under the NLRA, the broad prohibition in the nondisparagement provision was unlawful. The provision itself prohibited the employee from making any “statements to [the] Employer’s employees or to the general public which could disparage or harm the image of [the] Employer.” The ban also applied to statements toward the employer as well as “its parents and affiliated entities and their officers, directors, employees, agents and representatives” and had no applicable time limit.
The confidentiality provision was likewise unlawful. That provision broadly prohibited the employees from disclosing the terms of the agreement “to any third person.” The Board found this provision “has an impermissible chilling tendency on the Section 7 rights of all employees because it bars the subject employee from providing information to the Board concerning the Respondent’s unlawful interference with other employees’ statutory rights.” The Board also took issue with the confidentiality provision’s prohibition from discussing the terms of the severance agreement with former coworkers “who could find themselves in a similar predicament facing the decision whether to accept a severance agreement.”
The decision reverses two Board decisions from 2020 (Baylor and IGT), which held that offering severance agreements to employees is not unlawful, by itself. Last week’s ruling criticized the 2020 decisions for refusing to analyze the terms of the severance agreements and instead focusing only on the surrounding circumstances as the sole determinate of whether the agreement’s proffer was unlawful. The reversal of the 2020 decisions restores the “prior, well-established principle that a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights.”
The Board explained the importance of review of the agreement itself, regardless of the circumstances surrounding the offer of the agreement – “Where an agreement unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights, the mere proffer of the agreement itself violates the Act, because it has a reasonable tendency to interfere with and restrain the prospective exercise of Section 7 rights, both by the separating employee and those who remain employed. Whether the employee accepts the agreement is immaterial.”
One Board member dissented, arguing that the analysis in Baylor and IGT should be retained.
In light of this decision, employers should review any settlement, severance or separation agreements for compliance with the NLRB’s ruling. Note that the NLRB’s ruling only applies to hourly, non-exempt employees as managers and supervisors are not covered by the Act.