On February 21, the National Labor Relations Board decided (here) that nondisparagement and confidentiality provisions in a severance agreement that businesses give to employees are unlawful.
The case involved a situation not unlike many your business may have encountered before. In 2020, COVID-19 restrictions caused the employer to furlough 11 employees because they were deemed nonessential. The company presented each employee with a “Severance Agreement, Waiver and Release” that offered to pay differing severance amounts to each furloughed employee if they signed the agreement. All 11 employees signed the agreement.
Among other things, the agreement required the recipient to release claims against the employer. It also contained broad language prohibiting disparagement of the employer and requiring confidentiality about the terms of the agreement. (It’s unclear whether the agreement also required signatories to maintain the confidentiality of company trade secrets and the like. Either way, that wasn’t at issue.)
The Board’s General Counsel complained that the nondisparagement and confidentiality provisions of the severance agreement unlawfully restrained and coerced the furloughed employees in the exercise of their Section 7 rights.
Section 7 of the National Labor Relations Act 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,” as well as the right “to refrain from any or all such activities.”
In plain English, Section 7 guarantees both union and most nonunion workers the right to talk about work and talk smack about their employer with one another.
According to the Board, the nondisparagement and confidentiality provisions of the severance agreement restricted the exercise of Section 7 rights on its face because “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 that employers’ proffer of such agreements to employees is unlawful.”
Employees may not broadly waive their rights under the Act. But what about ex-employees? After all, this is a furlough.
It does not matter, concluded the Board.
A nondisparagement provision could chill efforts to assist “future cooperation with the Board’s investigation and litigation of unfair labor practices with regard to any matter arising under the NLRA at any time in the future, for fear of violating the severance agreement’s general proscription against disparagement and incurring its very significant sanctions. The same chilling tendency would extend to efforts by furloughed employees to raise or assist complaints about the Respondent with their former coworkers, the Union, the Board, any other government agency, the media, or almost anyone else.”
The confidentiality language would have a similar impact.
“This proscription would reasonably tend to coerce the employee from filing an unfair labor practice charge or assisting a Board investigation into the Respondent’s use of the severance agreement, including the nondisparagement provision. Such a broad surrender of Section 7 rights contravenes established public policy that all persons with knowledge of unfair labor practices should be free from coercion in cooperating with the Board. The confidentiality provision would also prohibit the subject employee from discussing the terms of the severance agreement with his former coworkers who could find themselves in a similar predicament facing the decision whether to accept a severance agreement.”
For unionized employers governed under the National Labor Relations Act, this decision now governs your workplace. In most situations, those companies must consult the union before providing a severance agreement.
But, as I noted above, the Act protects most employees whether the workplace is unionized or non-unionized. So, this decision covers those nonunion workplaces, too, unless/until this gets appealed to a federal court.
Should you scrub all confidentiality and nondisparagement language from your severance agreements? Other state laws (e.g., in New Jersey) may limit their breadth anyway. But, they won’t hold up if a former employee complains to the Board about them, which would seemingly only become an issue if your business tried to enforce them first.