- March 13, 2023
- Alerts
NLRB Prohibits Non-Disparagement and Confidentiality Clauses in Severance Agreements
On February 21, 2023, the National Labor Relations Board (“NLRB”) issued a decision that reversed its prior position and held that the inclusion of broad non-disparagement and confidentiality provisions in severance agreements is unlawful. This decision appears to apply equally to both union and non-union employees.
The NLRB found that non-disparagement and confidentiality clauses failed to “respect the range” of employee rights under Section 7 of the National Labor Relations Act (“Section 7”). Section 7 provides various protections to employees, including the right to discuss the terms and conditions of their employment with coworkers, unions, and the NLRB. The NLRB found that broad non-disparagement clauses could pressure employees to waive their Section 7 rights in order to receive benefits under a severance agreement.
The NLRB also found that confidentiality clauses, which would prohibit employees from discussing the terms of their severance agreement, would effectively preclude them from challenging other terms that they felt were unlawful (such as mandatory non-disparagement clauses).
What the Decision Means For You Moving Forward
Many employers routinely use severance (and separation) agreements when ending relationships with employees. Accordingly, employers will need to carefully consider the use of broad non-disparagement and confidentiality clauses when drafting severance and separation agreements. This is particularly important given that it is currently unclear whether the inclusion of non-disparagement and confidentiality provisions would invalidate the severance agreement in its entirety, or if those referenced provisions could be severed to otherwise keep the agreement in place. It is also unclear what impact, if any, the NLRB’s decision will have on previously negotiated settlement agreements.
There are some limitations, however, including that this decision should not affect severance agreements with bona fide supervisors, as defined by the National Labor Relation Act. Determining whether someone is a supervisor may require additional analysis.
Given these uncertainties, we expect more guidance from the NLRB on this decision. In the meantime, employers should strongly consider the need for such provisions in their standard severance and severance agreements and consult with counsel to narrowly tailor such provisions until the NLRB issues further guidance.
The NLRB found that non-disparagement and confidentiality clauses failed to “respect the range” of employee rights under Section 7 of the National Labor Relations Act (“Section 7”). Section 7 provides various protections to employees, including the right to discuss the terms and conditions of their employment with coworkers, unions, and the NLRB. The NLRB found that broad non-disparagement clauses could pressure employees to waive their Section 7 rights in order to receive benefits under a severance agreement.
The NLRB also found that confidentiality clauses, which would prohibit employees from discussing the terms of their severance agreement, would effectively preclude them from challenging other terms that they felt were unlawful (such as mandatory non-disparagement clauses).
What the Decision Means For You Moving Forward
Many employers routinely use severance (and separation) agreements when ending relationships with employees. Accordingly, employers will need to carefully consider the use of broad non-disparagement and confidentiality clauses when drafting severance and separation agreements. This is particularly important given that it is currently unclear whether the inclusion of non-disparagement and confidentiality provisions would invalidate the severance agreement in its entirety, or if those referenced provisions could be severed to otherwise keep the agreement in place. It is also unclear what impact, if any, the NLRB’s decision will have on previously negotiated settlement agreements.
There are some limitations, however, including that this decision should not affect severance agreements with bona fide supervisors, as defined by the National Labor Relation Act. Determining whether someone is a supervisor may require additional analysis.
Given these uncertainties, we expect more guidance from the NLRB on this decision. In the meantime, employers should strongly consider the need for such provisions in their standard severance and severance agreements and consult with counsel to narrowly tailor such provisions until the NLRB issues further guidance.