Do non-disparagement and confidentiality clauses in severance agreements violate Sections 7 and 8 of the National Labor Relations Act (NLRA)? The answer depends on the prevailing political winds – under President Trump’s NLRB, severance agreements containing these provisions were not coercive or violative of the NLRA (see, Baylor and IGT decisions discussed below).
Under the new administration, the pendulum swings as President Biden’s government scrambles to reverse policies and decisions made under Trump’s administration – what was, briefly, a climate favorable to employers is now shifting to a more labor-friendly climate and a more strict interpretation of labor laws (see also the FTC’s proposed rule banning non-compete clauses).
McLaren Macomb –the NLRB Overrules Baylor University Medical Center and IGT d/b/a International Game Technology
In McLaren Macomb and Local 40 RN Staff Council, Office and Professional Employees, International Union (OPEIU), AFL–CIO, Case 07–CA–263041, the National Labor Relations Board reversed the Baylor and IGT decisions and found that the use of non-disparagement and confidentiality clauses in severance agreements violate the rights of employees under Section 7 of the NLRA.
Baylor and IGT
In Baylor, the Board found that a severance agreement that included a confidentiality clause and agreement not to “pursue, assist, or participate in any [c]laim” against the employer did not violate Section 7 rights because the agreement was not mandatory, applied only to post-employment activities, and had no impact on the terms of conditions of employment – expressly overruling all prior cases that held differently.
In IGT, the Trump Board reaffirmed its finding in Baylor and dismissed a claim based on the employer’s inclusion of a non-disparagement clause in its severance agreement, finding that the agreement was voluntary, it did not affect pay or benefits, and it was not proffered coercively.
There was no analysis of the specific language in the severance agreements because the Board found that “an employer’s mere proffer to employees of a severance agreement with unlawful provisions cannot be unlawful, and “coercive language cannot have a reasonable tendency to coerce employees unless it is also proffered in circumstances deemed coercive, independent of the agreement itself.”
The Pendulum Swings: The NLRB’s Holding in McLaren Macomb
In McLaren Macomb, the Biden Board expressly overruled the Trump-era decisions of Baylor and IGT, returning “to the prior, well-established principle that a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights,” and examining, “as pre-Baylor precedent did, the language of the agreement, including whether any relinquishment of Section 7 rights is narrowly tailored.”
The test of whether an agreement violates Section 7 or Section 8 of the NLRA “does not turn on the employer’s motive or whether the coercion succeeded or failed.” The test is whether the language of the agreement would tend “to interfere with the free exercise of employee rights under the Act.”
The terms of the severance agreement in question included:
- Confidentiality – the terms of the agreement are confidential and cannot be disclosed to any third person (with exceptions for spouses and professional tax or legal advisors),
- Non-Disclosure – the employee “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,” and
- Non-Disparagement – 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,” and
- Sanctions – including injunctive relief, damages, costs, and attorney fees.
How Do Non-Disclosure, Non-Disparagement, or Confidentiality Clauses Violate the NLRA?
In contrast to the Trump Board’s analyses in Baylor and IGT, the Biden Board finds that Section 7 of the NLRA has a broad scope, affords broad protections to employees, and the protections of Section 7 are diminished by the terms of the severance agreement. The non-disclosure and non-disparagement provisions have a chilling effect on an employee’s ability to discuss their employment relationship, complain about the terms of their employment, or even communicate with their labor union about the terms of their employment.
The Board points out that “discussing the terms and conditions of employment with coworkers lies at the heart of protected Section 7 activity,” that Section 7 rights “are not limited to discussions with coworkers,” and these rights “extend to former employees” as well.
Section 7 protects an employee’s “efforts to improve terms and conditions of employment or otherwise improve their lot as employees through channels outside the immediate employee-employer relationship,” which may include communications about the employment – and potentially disparaging remarks about the employment – in “administrative, judicial, legislative, and political forums, newspapers, the media, social media, communications to the public,” and complaints to the NLRB.
Section 7 protects employees who “engage in communications with a wide range of third parties” when there is an ongoing labor dispute and “the communication is not so disloyal, reckless, or maliciously untrue to lose the Act’s protection.”
The severance agreement’s non-disclosure and non-disparagement provisions, in conjunction with the agreement’s damage provisions, would permit the former employer to effectively prevent a former employee from complaining about unfair labor practices under threat of a lawsuit and financial consequences.
The Board says that it “is tasked with safeguarding the integrity of its processes for employees exercising their Section 7 rights,” and that “Congress has made it clear that it wishes all persons with information about [unfair labor] practices to be completely free from coercion against reporting them to the Board.”
The Board suggests employers’ use of non-disclosure and non-disparagement clauses in severance agreements is tantamount to “employer intimidation of prospective complainants and witnesses. Since the Board’s ability to enforce Section 7 rights depends on 1) individuals initiating proceedings against employers and 2) the voluntary assistance of witnesses in providing information about employers, the Board cannot permit employers to essentially bribe or intimidate potential complainants or witnesses using confidentiality and non-disparagement agreements.
What’s Next?
For now, your company should review all severance agreements for the use of non-disparagement, non-disclosure, and confidentiality clauses, keeping in mind that some agreements you have already entered may now be unenforceable.
Review your existing agreements and discuss your goals with corporate counsel to determine whether 1) your existing agreements are enforceable, 2) the terms of your agreements can be narrowly tailored to comply with the Mclaren Macomb decision, or 3) there are alternative methods to achieve your goals.
Please feel free to contact one of our Murray Lobb attorneys to obtain our advice regarding employment law matters including severance agreements and representation for investigations and proceedings before the Texas Workforce Commission, EEOC, and Department of Labor. We also remain available to help you with all your general corporate, construction law, business, and estate planning needs.