On February 21, 2023, the National Labor Relations Board ruled employers cannot ask employees to sign severance agreements with broad confidentiality and non-disparagement terms. A copy of the Board’s decision is available here.
The National Labor Relations Act prohibits employers from interfering with, restraining or coercing employees who exercise their rights under Section 7 of the Act, such as the right to organize, bargain collectively, and engage in protected, concerted activities like bringing a group complaint to management. It has long been the case federal labor law thus prohibits employers from taking actions that could chill the rights union and non-union employees have under the Act. The Board’s recent decision applied these long-standing rules to ban two contract terms employers routinely include in severance agreements offered to employees.
In this case, the Board determined the following clauses violated the Act:
Confidentiality Agreement. 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.
Non-Disclosure. At all times, hereafter, the Employee 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. 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.
The Board decision overturns two Trump-era decisions. Under those prior decisions, employers who were not already bound by state laws restricting the terms that could be included in a severance agreement were free in most circumstances to use broad confidentiality and non-disparagement clauses like the ones above. That is no longer the case.
The Board determined merely giving an employee an agreement with overly broad confidentiality and non-disparagement clauses violates the Act. The Board’s decision, though disappointing for businesses, stops short of outlawing confidentiality and non-disparagement clauses altogether. Rather, it suggested employers can still use such clauses if they are narrowly tailored to respect the rights employees have under the Act. But if such clauses are not sufficiently narrowly tailored, an employer runs the risk of violating the Act.
The Board’s decision is a reminder employers cannot prevent employees from discussing their wages, hours and other terms and conditions of employment—whether by agreement or otherwise. These rights are not limited to discussions with coworkers, nor do they require an employer-employee relationship, as the Board repeatedly has held such rights extend to former employees.
Employers should be mindful of the Board’s stance when offering employees severance agreements on the condition they not disparage the employer or they keep the terms of the agreement or other aspects of the employment relationship confidential. A carefully drafted carve-out or saving clause is recommended, though it may not save the agreement from Board scrutiny. Employers will need to assess their risk tolerance for these clauses in light of the Board’s decision and ongoing legal changes at the state level responding to the #MeToo movement.