The National Labor Relations Board (NLRB) has issued a significant decision threatening the viability of provisions routinely included in employment settlement agreements.  In the McLaren Macomb decision, the NLRB ruled that an employer violated the National Labor Relations Act (the “Act”) when it offered severance agreements to 11 terminated employees containing confidentiality, nondisclosure and non-disparaging provisions.

The clauses at issue are:

Confidentiality Agreement.  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 purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.

Nondisclosure.  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 Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.

These provisions are typically included in employee separation agreements however, the NLRB deemed them as unlawful.  Section 8(a)(1) of the Act prohibits an employer from interfering with, restraining and coercing employees in the exercise of the rights guaranteed to them in Section 7 of the Act.  Section 7 guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from such activities.”

Why Was the Confidentiality Provision Found to be Illegal? 

In the McLaren decision, the NLRB decided that the confidentiality provision prohibited employees from engaging in communications with a wide range of third parties in circumstances where the communication could be related to the workplace.  Communications about the workplace are protected by Section 7, unless the communication is “disloyal, reckless or maliciously untrue to lose the Act’s protection.”  The provision could also be interpreted to prohibit contacting or communicating with the NLRB.

The NLRB discussed how the prohibition of an employee’s discussion with other employees is unlawful if it prevents an employee from:

• assisting co-workers with workplace issues concerning their employer
• communicating with others about their employment, including a union and the NLRB 

As a result, any restriction in a separation agreement which limits the right of an employee to discuss workplace issues with other employees, the NLRB, or a labor union, is unlawful.

Why Was the Non-Disparagement Provision Found to be Unlawful?

The NLRB discussed how public statements by employees about the workplace are “central to the exercise of employee rights under the Act,” even if they harm the image of the employer.  The NLRB found the prohibition in the nondisclosure provision that prohibits an employee from making any “statements to [the] employer’s employees or to the general public which could disparage or harm the image of [the] employer” to be unlawful. The NLRB stated that an employee’s critique of an employer’s policies is clearly protected under the Act unless it is reckless and maliciously untrue.

What Does This Mean for Employers?

On March 22, Jennifer Abruzzo, General Counsel of the NLRB issued a Memorandum stating that she wanted to assist NLRB regions in responding to inquiries from employers, employees, labor unions and the public about the implications of the McLaren case.  Among the points discussed are:

• Nondisparaging and confidentiality provisions in supervisor separation agreements may not be prohibited.  Supervisors are not “employees” under the National Labor Relations Act, and therefore are not protected by the Act.  However, if a provision implies that a supervisor is prohibited from participating in an NLRB proceeding the severance agreement could be unlawful.
• The McLaren decision will be enforced retroactively.  Ms. Abruzzo wrote that there could be cases where a severance agreement entered into beyond the 6-month statute of limitation could be found to be illegal if it chills the exercise of Section 7 rights.
• Because the offer of a severance agreement containing an overly broad non-disparagement and/or confidentiality provision could be found to be unlawful, employers should consider contacting employees subject to such severance agreements and advising them that the provisions are null and void, and that the employer will not seek to enforce the agreements.
•  Confidentiality and non-disparagement provisions which are narrowly drafted may be lawful.  She gave as examples of provisions that may be lawful, a confidentiality clause that only prohibits disclosure of the financial terms, limits the dissemination of proprietary or trade secret information for a period of time, based on legitimate business justifications, or is limited to employee statements that are maliciously untrue or made with reckless disregard for their truth or falsity
• A generic “savings clause” may not necessarily cure an overly broad provision.  Ms. Abruzzo has asked the NLRB to formulate a statement of rights that affirmatively and specifically describes an employee’s statutory rights and states that no employment rule should be interpreted as restricting those rights.  
• Ms. Abruzzo wrote that employment agreements containing confidentiality and non-disparagement clauses may also violate the Act.  She listed other provisions which may be problematic because they might interfere with an employees’ exercise of Section 7 rights such as non-compete clauses, no solicitation clauses, no poaching clauses, broad liability release, and covenants not to sue that go beyond the employer and/or may go beyond employment claims, cooperation requirements involving current or future investigations or proceedings involving the employer.  She did not provide any details as to how these provisions may violate the Act.

Employers must be cautious of the scope of non-disparagement and confidentiality provisions in severance agreements and employment agreements.  Such clauses must be drafted as narrowly as possible, to protect legitimate business interests rather than employee communications to other employees, to labor organizations and to the NLRB.