Publication

The National Labor Relations Board ("NLRB") issued a decision in McLaren Macomb this week, reverting to pre-Trump era precedent by holding that employers may not offer employees severance agreements that contain overly broad non-disparagement and confidentiality clauses. 

The main issue considered by the Board was whether McLaren Macomb Hospital violated Section 8(a)(1) of the National Labor Relations Act (“NLRA”) by offering severance agreements containing non-disparagement or confidentiality provisions. According to the Board, the agreement broadly prohibited the employees from making statements that could disparage or harm the image of the hospital and further prohibited them from disclosing the terms of the agreement.

Importantly, the Board held that merely “proffering” a severance agreement containing terms that required employees to broadly give up their rights amounted to an unfair labor practice under the NLRA.[1] Conditioning benefits on terms that chilled the ability of employees to discuss and improve workplace conditions was deemed an interference with workers’ organizing rights, essentially requiring employees to choose between receiving benefits and exercising their rights under the NLRA.

The Legality of Confidentiality and Non-Disparagement Clauses

For an employer who wishes to know whether confidentiality and non-disparagement clauses contained in severance agreements are still valid and legally enforceable, the answer, as it often is in these circumstances, is “it depends.” 

First, not all employees are covered by Section 7 provisions.  Specifically, public sector employees, independent contractors, certain classes of agricultural workers, managers and most supervisors are not covered by Section 7.  One critical point is that courts and the NLRB will look beyond titles, and instead examine an employee’s job functions to determine whether the employee is properly categorized, as employers sometimes inflate titles (for example, giving a janitor the title of superintendent, referring to a barber as a “grooming manager,” or calling a receptionist an “office manager”) in an attempt to exempt them from wage and hour provisions of the Fair Labor Standards Act (“FLSA”), bargaining provisions under the NLRA, or similar provisions in state statutes (such as the California Labor Code).

Also, the Board’s main concern was with the “sweepingly broad” nature of the clauses at issue.  A non-disparagement clause that precluded an employee from saying anything potentially negative about an employer would likely be considered an unfair labor practice. However, more narrowly tailored clauses that protect an employee’s rights are likely still permissible.

Finally, other Federal agencies and states already restrict the scope of confidentiality and non-disparagement provisions. For example, the Equal Employment Opportunity Commission (“EEOC”) takes the position that any agreement that bars employees from filing an EEOC charge is unlawful, and has sued employers for such practices. Likewise, several states, like California, have laws that an employer may not require agreements that have the purpose or effect of denying an employee the right to disclose information about unlawful acts in the workplace, or that restrict or prevent an employee from disclosing factual information relating to an act of sexual assault, workplace harassment, discrimination, or retaliation.

Legality of Non-Disparagement Provisions and Best Practices

In its decision, the Board noted that the non-disparagement clause in the agreement at issue was not time-restricted. Moreover, the clause would prohibit employees from complaining about violations of the NLRA, and prohibit employees from assisting the NLRB in subsequent actions against the company.  The Board also expressed concern regarding the inclusion of the company’s parents and subsidiaries in this section[2]. Although not explicitly stated, the implication of its opinion is that the NLRB will carefully scrutinize restrictive covenants to determine whether they are overbroad, and that more narrowly tailored covenants are more likely to survive scrutiny.

In general and to reduce liability, we recommend that non-disparagement provisions be limited to preventing reckless, malicious and untrue statements of fact, or untruthful statements designed to cause financial or reputational harm to a company or its employees. In addition, non-disparagement provisions should include a disclaimer, such as “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct you have reason to believe is unlawful. In addition, nothing in this agreement prevents you from participating in Section 7 activity under the National Labor Relations Act.”

As a practical matter, an employee who parts on good terms or is satisfied with a severance package or settlement agreement is less likely to malign his former employer. Moreover, employers will usually not enforce these non-disparagement provisions except in the most egregious of cases, and inclusion of overbroad non-disparagement provisions therefore generates undue liability with little tangible benefit.

Legality of Confidentiality Provisions and Best Practices

As with non-disparagement provisions, the Board did not prohibit confidentiality clauses as a whole, and whether a confidentiality clause passes muster depends on it being narrowly and carefully tailored. A confidentiality provision that prohibits an employee from filing an administrative charge with government agencies, or from participating in an investigation of the employer, is unlawful. However, a more carefully tailored confidentiality provision is still likely permissible.

A sample confidentiality clause that would likely pass muster might be: “The Parties agree that this confidentiality provision is not intended to waive any claims or rights that cannot be waived as a matter of law.  Moreover, nothing herein prohibits Employee from filing a charge with or participating in any investigation undertaken by a government agency, except that Employee hereby waives any rights to recover any money in connection with such a charge or investigation with respect to released claims, whether filed by Employee or on her behalf by another person or entity.”

What About General Releases Drafted In the Course of Litigation?

The Board did not make a distinction between releases offered as part of a layoff or as part of a settlement agreement made during litigation. The question hinges on whether a settlement of litigation is really a term and condition of employment under the NLRA. While potentially distinguishable, barring a settling plaintiff from discussing what happened relative to the termination would almost certainly be a violation of the NLRA. Moreover, as discussed above, settlement agreements drafted in the course of litigation may still run afoul of EEOC guidance or state laws. In an abundance of caution, employers should draft confidentiality and non-disparagement clauses in pre-litigation severance agreements and post-litigation settlement agreements similarly.

Friendly Advice

Labor and employment law changes on a regular basis. Employers should review their handbook, policies and procedures on a regular basis, and at least annually, to ensure compliance with the latest statutes and rulings. Implementing appropriate and lawful policies, and maintaining positive employee relations, can help avoid costly litigation in the first place.

Trusted and experienced employment lawyers, such as Gordon & Rees' Jason Goldwater, Jeffrey Schagren, and Matthew Wise, can help ensure that employers in all 50 states and across all industries comply with the law and avoid expensive mistakes.