Thursday, February 23, 2023

NLRB bans non-disparagement and confidentiality covenants in severance agreements. What now?

Is it time to rip up your stock severance agreement? Consider the following two clauses, which I bet your standard agreement contains in some form.

Non-Disparagement. 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 Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.

Confidentiality. 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. At all times hereafter, the Employee also promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee's employment.

In McLaren Macomb, the NLRB considered each of these garden-variety severance agreement clauses and concluded that each violates the National Labor Relations Act by unlawfully infringing upon the rights of employees to engage in protected concerted activity.

As to the non-disparagement covenant, the Board held that it, on its face "on its face substantially interferes with employees' Section 7 rights." As the Board further explained:

Public statements by employees about the workplace are central to the exercise of employee rights under the Act.… [T]he comprehensive ban would encompass employee conduct regarding any labor issue, dispute, or term and condition of employment of the Respondent.… [E]mployee critique of employer policy pursuant to the clear right under the Act to publicize labor disputes is subject only to the requirement that employees' communications not be so "disloyal, reckless or maliciously untrue as to lose the Act's protection.

The Board applied similar logic to striking the confidentiality covenant. It is unlawful because "it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment. As the Board further explained:

The confidentiality 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 confidentiality provision would also prohibit the subject employee from discussing the terms of the severance agreement with his former coworkers who could find themselves in a similar predicament facing the decision whether to accept a severance agreement. 

In other words, because an employee could hypothetically read a broad confidentiality or non-disparagement clause to limit their right to talk about wages, hours, and other terms and conditions of employment, they hypothetically violate their Section 7 right to engage in protected concerted activity.

A few thoughts and takeaways.

1.) This case only applies to employees that the NLRA covers. In other words, it does not apply to anyone classified as a "supervisor" under Section 2(11) the Act. For these employees, keep your severance agreements as-is; this case does not impact them at all.

2.) McLaren Macomb is prospective only. It will have no impact on severance agreements previously signed.

3.) This decision makes very little sense. By the very nature of a severance agreement, you are giving a former employee something to which they are not entitled (additional money) in exchange for a signed agreement that contains certain covenants. The ex-employee is free to take the severance payment in exchange for the signed agreement (including the confidentiality and non-disparagement clauses) or not take the severance payment (and say whatever they want to whom). As these non-disparagement and confidentiality clauses are a condition of the receipt of a severance payment to which a non-employee is not otherwise entitled, I fail to see how the NLRA is implicated at all.

4.) There is little chance that this decision survives scrutiny by the court of appeals, and zero chance at the Supreme Court. Or, you can just wait for a Republican President to appoint a Republican-majority NLRB, which will overturn this decision the first chance it gets.

5.) To me (this isn't legal advice; please check with your own employment lawyer), the following disclaimer language, which I've used in one form or another for years, should suffice to pass muster with the NLRB:

This Agreement is not intended to restrict employees' communications or actions that are protected by federal law, including discussing terms and conditions of employment or otherwise exercising protected rights under Section 7 of the National Labor Relations Act.

The bottom line: make sure you and your lawyer have considered the impact of McLaren Macomb the next time you ask a non-supervisory employee to sign a severance agreement.