NLRB’s important decision on confidentiality and nondisparagement clauses

At least for now, as a result of the U.S. National Labor Relations Board's (NLRB) recent decision in McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023), employers may need to revise their severance and other agreements with non-supervisory/managerial employees - agreements that contain confidentiality and/or nondisparagement clauses to avoid potential liability for violating the National Labor Relations Act (NLRA).

Section 7 of the NLRA

There is a common misunderstanding that the NLRB's decisions apply only to unionized employees. Not so. All employees other than supervisorial or managerial employees (as defined by relevant statutory and case law) are covered by the NLRA. Section 7 of the act protects the rights of covered employees to engage in concerted activity for purposes of collective bargaining or other mutual aid and protection. This has long been held to include the right to discuss with other employees the terms and conditions of employment.

Prior to this decision, the NLRB looked to the circumstances surrounding severance agreements to determine if they were entered into under coercive circumstances. In McLaren Macomb, however, the NLRB took a much broader view, thereby changing the law, at least for now.

In this decision, the NLRB held that it is not just the circumstances that are relevant, but also the actual language of a severance agreement that will be determinative. If the language of the confidentiality or nondisparagement provision has a "reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights" or if it will restrict "filing unfair labor practice charges with the Board, assisting other employees in doing so, or assisting the Board's investigative process," it will be deemed to violate the NLRA.

With those principles in mind, the NLRB deemed unlawful the nondisparagement and confidentiality provisions of a hospital's severance agreement that provided in pertinent part:

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 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."

In the NLRB's view, these provisions impermissibly restricted employees from engaging in activities protected by the NLRA, such as filing unfair labor practice charges, cooperating with NLRB investigations, and raising complaints about working conditions. The NLRB also deemed their scope to be overbroad in other respects, such as the nondisparagement provision's lack of a temporal limit and application beyond just the employer.

Agreements Covered

Although the McLaren Macomb decision addressed a severance agreement, this decision is likely to apply to other types of agreements with departing employees -- agreements that contain confidentiality or nondisparagement provisions. It is also likely that the decision will apply to employment, restrictive covenant, and confidentiality agreements more generally.

Retroactivity

Although the decision does not explicitly state whether it will apply retroactively, it is best to assume that it will. As a side note, the NLRA includes a short limitations period - six months - to file an unfair labor practice charge, so agreements executed more than six months ago will be difficult to challenge. However, as soon as an employer seeks to enforce an agreement with a problematic confidentiality or nondisparagement provision (even one executed years ago), the statute-of-limitations bar may fall away.

Impact

Given that confidentiality and nondisparagement are sometimes what motivate employers to pay severance, this decision could have the unintended consequence of discouraging employers from paying employees severance upon their departure given that requiring confidentiality of a severance amount would be prohibited under this decision. However, the decision could be challenged in the Sixth Circuit, and employers may not have heard the last word on these clauses.

Do's and Don'ts for Employers

Do not include an overbroad provision on the theory that lack of enforcement will protect the employer from a claim of unfair labor practices. Just including such a provision could itself be unlawful.

Do not assume that, because your workforce is not unionized, your employees are not protected by the NLRA. All employees other than managers and supervisors are protected by the NLRA.

Do stop to consider whether the confidentiality or nondisparagement clauses are necessary. For lower-level employees, confidentiality or nondisparagement may not be important in the first instance, particularly because these clauses may be difficult to enforce.

Do consider including temporal and other restrictions in nondisparagement clauses. For example, consider using only statements that have already been deemed by the courts to be unprotected. Statements that are "disloyal, reckless, or maliciously untrue" are not protected by the NLRA.

Do consider narrowly drafting confidentiality provisions to include important material only, such as proprietary information, and include explicit disclaimers regarding activity not covered.

Do consult legal counsel to be sure the language included in covered agreements is consistent with the NLRB's recent ruling. For confidentiality provisions, employers may also wish to consider narrow restrictions such as trade secrets and other proprietary information.

Under McLaren Macomb, there will likely not be much room to protect the nature and terms of a settlement for employees subject to the Board's jurisdiction.

This article has been prepared for informational purposes only and does not constitute legal advice. This information is not intended to create, and the receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers. The content therein does not reflect the views of the firm.