On February 21, 2023, a majority of the four-member National Labor Relations Board (the “Board”) ruled that the use of broad confidentiality and non-disparagement clauses by employers in separation agreements unlawfully interferes with the right of employees to speak with each other and to express negative views of their employer. This holding, set forth in a case called McLaren Macomb, 372 NLRB No. 58 (2023), addressed the following two clauses in a severance agreement offered to laid-off employees:
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 McLaren Macomb decision held that the language in the confidentiality clause infringed upon employees’ rights under Section 7 of the National Labor Relations Act to assist co-workers and to participate in Board proceedings. Similarly, the non-disparagement language (the second sentence in the Non-Disclosure clause) meant that employees could not exercise their Section 7 rights to discuss matters regarding their prior employment. The Board also expressed concerns about the breadth and scope of the restrictions and the consequences to an employee for a violation, which included damages and payment of attorneys’ fees and costs.
Under prior decisions by Republican-appointed members (Baylor University Medical Center, 369 NLRB No. 43 (2020) and International Game Technology, 370 NLRB No. 50 (2020)), the Board held that such clauses were unlawful only if accompanied by a coercive act by the employer that independently violated the National Labor Relations Act. The McLaren Macomb specifically overruled these cases, holding that the “mere proffer” of a severance agreement that requires forfeiture of statutory benefits “has a reasonable tendency to interfere with or restrain the prospective exercise of Section 7 rights.”
With this broad holding, employers will need to weigh whether the benefits of confidentiality or non-disparagement clauses are worth the risk. As a practical matter, when faced with violations, few employers are willing to spend the resources to seek enforcement in court, and recovery of damages from a former employee can be a dubious project. Additionally, addressing breaches can often compound concerns of negative publicity. On the other hand, just the existence of these types of clauses likely causes many employees to be more careful about what they say publicly concerning the agreement or their former employer.
For employers electing to use such clauses, inclusion of an appropriate disclaimer exempting protected conduct (filing a charge with or cooperating in an investigation by a state or federal agency) is critical. While the McLaren Macomb ruling did not address the mitigating effects of a disclaimer in a release, their use provides an employer a reasonable basis to argue that clauses in a release do not have the “tendency to interfere with or restrain the prospective exercise of Section 7 rights” that were of concern to the Board. Employers can also more specifically define the extent of non-disparagement provisions to address conduct that is not protected, i.e., prohibiting only reckless or maliciously untrue statements. Additionally, release agreements should include a “severability” clause, authorizing a court to interpret, modify or eliminate any clauses that it determines to be problematic.
Two other points bear noting. First, Section 7 rights (and thus the application of the Board’s ruling) do not apply to supervisory employees (defined as individuals “having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.”) Second, the period of potential exposure is limited by the requirement that charges must be filed with the Board within six months.
In sum, employers have generally found these types of clauses to have value, and to promote, not impede, the resolution of employment disputes. While the Board’s new decision casts some doubt on this traditional approach, there may be ways to address the Board’s concerns without losing the value of these types of provisions. Employers should review their typical forms of agreement and consult counsel as to the best approach to addressing the issues raised by the McLaren Macomb decision.
Prince Lobel’s Employment Law group is available to help on confidentiality and non-disparagement issues relating to separation agreements, as well as the full range of employment issues employers face.
Prince Lobel Partner Christopher Campbell is the author of this alert.