The Continued Erosion of Confidentiality and Nondisclosure Provisions in Severance Agreements
On February 21, 2023, the National Labor Relations Board issued its opinion in McLaren Macomb, addressing the enforceability of confidentiality and nondisparagement provisions in severance agreements. For our public entity clients, you might be thinking, “This doesn’t affect me; the NLRB has no authority over public entities.” For our private employer clients, you might be thinking, “That doesn’t affect me, my company doesn’t have any unions.” To our public entity clients, you are right, NLRA does not apply to you. But… the Nevada Employee Management Relations Board does apply to you, and they take all their law from the NLRB. To our private employer clients, sadly, the argument that the NLRA only oversees labor disputes is a myth. The NLRB has very broad authority over all employers.
What has the NLRB been up to in the McLaren decision? The case stems from the McLaren company’s economic lay-offs during the pandemic. As part of the lay-off process, McLaren wanted the laid-off employees to sign severance agreements. The severance agreements contained standard language that prohibited employees from discussing the terms of the agreement with anyone other than a spouse and/or legal or financial advisor. The agreements also contained standard nondisparagement language. As employers, we all know the cringe-worthy discovery of employees settling in for an evening of quality time on their favorite social media website and doing a little employer-bashing. It has been the rule in Section 7 of the NLRA for some period of time that an employer cannot prevent its employees from discussing the terms and conditions of their employment, known as protected concerted activity. Employees can complain to each other about things they do not like about the terms and conditions of their employment and cannot be disciplined. You cannot prohibit them from talking to each other.
In McLaren, the Board held that an employer violates the Act when it offers a severance agreement with provisions that would restrict employees’ exercise of their NLRA rights to participate in protected concerted activity. They asked whether the terms of the severance agreement would have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their rights. The Board held that limitations on statements which would disparage or harm the image of the employer were unlawfully broad. Such language had a clear chilling tendency on the exercise of employee rights.
The Board said broad prohibitions on disclosing the terms of the agreement to any third person, also would prevent an employee from engaging in protected activity. Specifically, the Board said such a prohibition against discussing the terms with other employees interfered with discussions with coworkers who could find themselves facing the decision of whether to accept a severance agreement, as well as precluding an employee from assisting coworkers with workplace issues concerning their employer.
In a clarifying memo issued shortly after the decision, the NLRB General Counsel (“GC”) offered comments from which some of us may not take much comfort, but are of interest, nonetheless. Some of the more salient points are listed here:
- The circumstances of the offer do not matter. It does not change the application of McLaren.
- Whether the employee signed the Agreement or not is irrelevant in determining whether there is a violation, since the offer itself inherently coerces employees by conditioning severance benefits on the waiver of statutory rights. Just because the employee does not sign the Agreement does not render the conduct lawful.
- While the NLRA does not protect managerial and supervisory staff, the Board believes that the Act does protect a supervisor who is retaliated against because they refused to act on their employer’s behalf in committing an unfair labor practice.
- The GC says the Act is presumed to be applied retroactively. However, there is a six-month statute of limitations which in most circumstances would apply to an effort to render void a severance agreement.
- Most likely, only the improper provisions would be considered void, and the remainder of the severance agreement would remain enforceable.
- Former employees are entitled to the same protection as current employees.
- Unions cannot lawfully waive rights on behalf of employees.
- The same prohibitions would apply to overly broad offer letters.
- Confidentiality provisions that are narrowly-tailored to restrict sharing of proprietary or trade secrets for a period of time based on legitimate business justifications may be considered lawful.
- Narrowly-tailored, justified, nondisparagement provisions limited to employee statements about the employer that meet the definition of defamation as being maliciously untrue such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity, may be found lawful.
- The GC has suggested that other clauses in employee agreements may also violate the Act, such as noncompete clauses, non-solicitation clauses, no poaching clauses, broad liability releases, and covenants not to sue.
What is the take-away? You need to look at past severance agreements, as well as severance agreements which are being contemplated. All hope is not lost, but because of the lack of guidance from the NLRB, it is going to be difficult for employers to draft nondisparagement and confidentiality provisions that the Board would consider lawful. For instance, the Board is silent on whether such Agreements would remain enforceable if the employee was assisted by an attorney in determining whether to accept the terms. In some instances, a savings clause might be crafted that acknowledges the Agreement is not intended to violation an employee’s rights. You might want to consider consulting experienced employment counsel to ensure the provisions of your Agreements are not overly broad.
If you have any questions, you are invited to contact any of the employment lawyers at Lemons, Grundy & Eisenberg.