In a significant reversal of past precedent, a divided National Labor Relations Board ruled on February 21, 2023 that severance agreements which contain confidentiality or non-disparagement clauses are in violation of the National Labor Relations Act. Section 7 of the NLRA guarantees employees "the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection," as well as the right "to refrain from any or all such activities."
In the case at issue, the severance agreement provided to furloughed employees included common clauses which required the employees to keep the terms confidential, agreeing not to disclose any provisions to third parties other than a spouse, professional tax advisor, or legal counsel unless compelled to do so by a court of administrative agency. The agreement also required the employee to refrain from making statements to other current employees or the general public which could disparage or harm the image of the employer, its parent and affiliated entities and their officers, directors, agents and representatives.
In finding these provisions in violation of federal law generally, the NLRB noted that “Section 7 rights are not limited to discussions with coworkers, as they do not depend on the existence of an employment relationship between the employee and the employer,” further noting that it has repeatedly affirmed that such rights extend to former employees. The Board also indicated that “Section 7 protections extend to employee efforts to improve terms and conditions of employment or otherwise improve their lot as employees through channels outside the immediate employee-employer relationship.”
Regarding the non-disparagement provision specifically, the Board held that “public statements by employees about the workplace are central to the exercise of employee rights under the Act.” Therefore, broad non-disparagement provisions have a “clear chilling tendency on the exercise of Section 7 rights by the subject employee.” With respect to confidentiality clauses, the Board noted that such provisions “would prohibit the subject employee from discussing the terms of the severance agreement with former coworkers who could find themselves in a similar predicament facing the decision whether to accept a severance agreement.” In so holding, the Board ruled that “a severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer and from communicating with others about the employment.”
One issue that remains unclear is whether this ruling applies in equal force to Settlement Agreements and General Releases that resolve pending or threatened litigation. An argument could be made that this ruling is narrowly focused to severance agreements offered to current or recently terminated employees in circumstances that do not involve actual legal action. Moreover, nothing in this ruling seems to invalidate anti-defamation provisions which could still prohibit the false assertion of fact regarding a business to a third party where that false assertion harms the business' reputation. Lastly, the Board does not address circumstances where the employee desires confidentiality in terms of the content of a severance agreement. In those instances, it seems that mutual confidentiality may be permitted where the employee is the party seeking the inclusion of such provision.
If you have any questions about how this ruling may affect your business, please contact Dan Lieberman, Esq. at firstname.lastname@example.org or 1-888-488-2638.
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