Are Severance Agreements That Prohibit Nondisparagement and Require Confidentiality Unlawful? The National Labor Relations Board Thinks So
Contact Clara (C.B.) Burns, Gilbert L. Sanchez, Charles C. High, Jr., Isaac J. Blanco and Metzeri A. Camacho -
March 2, 2023
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The National Labor Relations Board (“NLRB” or “Board”) ruled last week that companies are prohibited from offering severance agreements that include non-disparagement clauses as a condition for severance pay and which require employees to maintain confidentiality of the terms of the agreements. In the recently decided case, a Michigan hospital offered severance agreements including a clause that broadly prohibited the permanently furloughed employees from making statements that could disparage or harm the image of the hospital. Local 40 RN Staff Council, the exclusive collective-bargaining representative for the unit, represented these eleven employees. It also included a confidentiality agreement prohibiting the former employees from speaking to any third party about the terms of the agreement.
The NLRB’s General Counsel, who prosecutes violations of the National Labor Relations Act (“Act”), argued that the nondisparagement and confidentiality provisions in the severance agreements would unlawfully restrain and coerce the furloughed employees from exercising their Section 7 rights. Section 7 of the Act grants employees the right to self-organization, to form, join, or assist labor organizations and, inter alia, to bargain collectively through representatives of their own choosing. The General Counsel argued that the severance agreements violate Section 8(a)(1) of the Act because the provisions interfered with the employees’ Section 7 rights.
The NLRB agreed with the General Counsel and held that the nondisparagement and confidentiality provisions interfered, restrained, and coerced the employees to waive their Section 7 rights by conditioning the receipt of severance benefits on accepting the provisions. The Board also reasoned by not allowing the employees to speak about the terms of the agreement, that amounted to coercion not to report NLRA violations. The Board noted that the end result from these types of nondisparagement and confidentiality provisions is a sweepingly broad bar that has a chilling tendency on the exercise of Section 7 rights.
The current Board displayed a stark contrast from the Trump administration by returning to the “well-established principle that a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees of their Section 7 rights, and that employers’ proffer of such agreement to employees is unlawful.” This ruling tracks with the current administration’s apparent interest in providing more protection for employees, which the FTC displayed earlier this year with its ban on non-compete agreements. See Non-Compete E-Blast.
If you are a non-union employer and think you do not need to be concerned with the NLRB’s ruling, think again. The NLRA applies to both unionized and non-union employers, so the Board’s ruling impacts most employers. Accordingly, you need to review your severance agreements and determine whether they have language, such as nondisparagement and confidentiality provisions the Board found unlawful and revise as necessary.
We will continue to monitor and keep you updated on all significant changes on this issue. Please feel free to contact Kemp Smith’s Labor and Employment Department if you need guidance and assistance.
The NLRB’s General Counsel, who prosecutes violations of the National Labor Relations Act (“Act”), argued that the nondisparagement and confidentiality provisions in the severance agreements would unlawfully restrain and coerce the furloughed employees from exercising their Section 7 rights. Section 7 of the Act grants employees the right to self-organization, to form, join, or assist labor organizations and, inter alia, to bargain collectively through representatives of their own choosing. The General Counsel argued that the severance agreements violate Section 8(a)(1) of the Act because the provisions interfered with the employees’ Section 7 rights.
The NLRB agreed with the General Counsel and held that the nondisparagement and confidentiality provisions interfered, restrained, and coerced the employees to waive their Section 7 rights by conditioning the receipt of severance benefits on accepting the provisions. The Board also reasoned by not allowing the employees to speak about the terms of the agreement, that amounted to coercion not to report NLRA violations. The Board noted that the end result from these types of nondisparagement and confidentiality provisions is a sweepingly broad bar that has a chilling tendency on the exercise of Section 7 rights.
The current Board displayed a stark contrast from the Trump administration by returning to the “well-established principle that a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees of their Section 7 rights, and that employers’ proffer of such agreement to employees is unlawful.” This ruling tracks with the current administration’s apparent interest in providing more protection for employees, which the FTC displayed earlier this year with its ban on non-compete agreements. See Non-Compete E-Blast.
If you are a non-union employer and think you do not need to be concerned with the NLRB’s ruling, think again. The NLRA applies to both unionized and non-union employers, so the Board’s ruling impacts most employers. Accordingly, you need to review your severance agreements and determine whether they have language, such as nondisparagement and confidentiality provisions the Board found unlawful and revise as necessary.
We will continue to monitor and keep you updated on all significant changes on this issue. Please feel free to contact Kemp Smith’s Labor and Employment Department if you need guidance and assistance.
