Confidentiality and Non-Disparagement Agreements in Jeopardy
March 17, 2023
A decision of the National Labor Relations Board issued on February 21, 2023, will have a significant impact on private sector employers who include confidentiality and non-disparagement provisions in severance, separation, or settlement agreements with their non-supervisory, non-managerial employees. The mere offering of an agreement containing an “overbroad” confidentiality or non-disparagement provision is unlawful, regardless whether the provision is offered in good faith, whether the employee accepts the provision voluntarily, or whether the employee receives substantial consideration in exchange for the provision.
The employer in this case operated a hospital that had terminated its outpatient services during the Covid-19 pandemic and, as a result, had permanently furloughed eleven employees. Each furloughed employee was offered a “Severance Agreement, Waiver and Release” that each agreed to sign. In exchange for severance payments, the employees released the employer from all employment claims. They also agreed to a standard confidentiality clause:
The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purpose of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.
In addition, they agreed to a common non-disparagement clause:
At all times hereafter, the Employee promises and 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. At all times hereafter, the Employee agrees not to make statements to Employer’s employees or to the general public which could disparage or harm the image of the Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.
These were the two clauses that the NLRB found to be unlawful.
Federal labor law guarantees non-supervisory, non-managerial employees the right to engage in “concerted activity” – joint action by employees to address work related issues. Talking openly with one another about pay and benefits, circulating petitions about working conditions, jointly speaking to local media and the public about the workplace, appealing to administrative, judicial, legislative and political channels, and jointly approaching supervisors to address working conditions all count as “concerted activity.” And the right to engage in “concerted activity” applies to all non-supervisory, non-managerial employees in the private sector, even in the absence of a union.
According to the NLRB, the employer’s non-disparagement clause had “a clear chilling tendency on the exercise” of concerted activity rights by prohibiting the former employees from cooperating with NLRB enforcement actions and raising or assisting complaints about the employer with their former coworkers, their union, any other government agencies, the media, and the public at large. The confidentiality provision had a similar “chilling tendency” because it prohibited the former employees from disclosing the existence of the non-disparagement clause, and from discussing the other terms of the settlement agreement with former coworkers, the union, and others. “A severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about … employment.” The right to criticize employers and publicize labor disputes is limited only by the requirement that employees not be “so disloyal, reckless or maliciously untrue as to lose … protection.”
Notably, the mere proposing of one of these prohibited clauses was enough to give rise to liability. Whether the proposals were made in good faith, whether the employees accepted the proposals willingly, or whether the employees received substantial financial consideration in exchange for accepting the proposals was irrelevant.
The NLRB had previously held that such confidentiality and non-disparagement clauses would be unlawful only if they were offered in a coercive manner, were not voluntarily accepted, affected pay or benefits already owed to the employee, or were offered in the context of other unfair labor practices. These earlier decisions have now been rejected and overruled.
And it bears repeating: this NLRB decision affects all private sector employers, regardless whether their employees are unionized or not.
Care must now be used when preparing separation, severance and settlement agreements involving non-supervisory, non-managerial employees. Non-disparagement and confidentiality clauses for these employees will need to be narrowly drawn, with the focus being on prohibiting reckless and maliciously untrue statements rather than broad reference to “disparaging comments” or “harm” to the employer’s reputation.
This article is for informational purposes only and should not be relied upon as legal advice. If you have specific questions regarding a particular fact situation, please consult our office or other competent legal counsel.