NLRB Finds Nondisparagement and Confidentiality Provisions Found in Many Severance Agreements Unlawful

Texas Employment Law Update -

Russell D. Cawyer

Russell D. Cawyer

July 17, 2023 05:15 PM

NLRB Finds Nondisparagement and Confidentiality Provisions Found in Many Severance Agreements Unlawful

By Russell Cawyer on April 10, 2023

Posted in Case Summaries, Human Resources, News & Commentary

A recent decision of the National Labor Relations Board (the “Board”) concluded that standard nondisparagement and confidentiality provisions found in many employee severance agreements violate federal labor law because they have a reasonable tendency to interfere with and restrain employees’ prospective rights to engage in protected concerted activity, bargain collectively and form unions for their mutual aid and protection.

McLaren MacComb (the “Hospital”) operates Methodist hospital; a 2,300 employee facility, located in Michigan. Approximately 350 of the Hospital’s service employees are represented by a union. In June 2020, after the start of the COVID-19 pandemic, the Hospital furloughed eleven employees who were members of the union. The Hospital did not notify the union in advance of the furloughs nor did it bargain with the union over the effects of the layoffs.

Each of the furloughed employees was provided with a severance agreement providing a broad release of claims in return for severance payments. The Hospital did not provide the union with advance notice of the severance terms nor bargain with the union prior to entering individual agreements with the represented workers. The severance agreements contained confidentiality and nondisparagement provisions. These provisions were challenged by the Board’s General Counsel as having a chilling effect on an employee’s Section 7 rights (i.e., the right to form and join unions, collectively bargain and engaged in protected concerted activity) and arguing that the mere proffer of the agreements with these overly broad provisions constituted an unfair labor practice.

The challenged provisions stated:

  1. 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.
  2. Non-Disclosure. 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.

The severance agreement provided for monetary and injunctive sanctions in the event of breach of these provisions.

The General Counsel challenged these provisions of the agreement arguing that they unlawfully restrained and coerced the furloughed employees in the exercise of their Section 7 rights. The Board agreed.

With respect to the nondisparagement provision, the Board observed that:

Public statements by employees about the workplace are central to the exercise of employee rights under the Act. Yet the broad provision at issue here prohibits the 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”—including, it would seem, any statement asserting that the Respondent had violated the Act (as by, for example, proffering a settlement agreement with unlawful provisions). This far reaching proscription—which is not even limited to matters regarding past employment with the Respondent—provides no definition of disparagement . . . .

Instead, the comprehensive ban would encompass employee conduct regarding any labor issue, dispute, or term and condition of employment of the Respondent. As we explained above, however, employee critique of employer policy pursuant to the clear right under the Act to publicize labor disputes is subject only to the requirement that employees’ communications not be so “disloyal, reckless or maliciously untrue as to lose the Act’s protection.” Further, the ban expansively applies to statements not only toward the Respondent but also to “its parents and affiliated entities and their officers, directors, employees, agents and representatives.” The provision further has no temporal limitation but applies “[a]t all times hereafter.”

The end result is a sweepingly broad bar that has a clear chilling tendency on the exercise of Section 7 rights by the subject employee. This chilling tendency extends to efforts to assist fellow employees, which would include 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. In sum, it places a broad restriction on employee protected Section 7 conduct. We accordingly find that the proffer of the nondisparagement provision violates Section 8(a)(1) of the Act.

And regarding the confidentiality provision, the Board stated:

The [confidentiality] provision broadly prohibits the subject employee from disclosing the terms of the agreement “to any third person.” The employee is thus precluded from disclosing even the existence of an unlawful provision contained in the agreement. 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 has an impermissible chilling tendency on the Section 7 rights of all employees because it bars the subject employee from providing information to the Board concerning the Respondent’s unlawful interference with other employees’ statutory rights.

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. In this manner, the confidentiality provision impairs the rights of the subject employee’s former coworkers to call upon him for support in comparable circumstances. Additionally encompassed by the confidentiality provision is discussion with the Union concerning the terms of the agreement, or such discussion with a union representing employees where the subject employee may gain subsequent employment, or alternatively seek to participate in organizing, or discussion with future co-workers. 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 his employment. Id. Conditioning the benefits under a severance agreement on the forfeiture of statutory rights plainly has a reasonable tendency to interfere with, restrain, or coerce the exercise of those rights. unless it is narrowly tailored to respect the range of those rights. Our review of the agreement here plainly shows that not to be the case. We accordingly find that the proffer of the confidentiality provision violates Section 8(a)(1) of the Act.

That the Board found the mere proffer of an agreement with these provisions in it to be unlawful should be concerning to employers. These provisions are routine and standard in many severance agreements offered to employees being laid off by companies. Employers should consult their labor and employment counsel and review their standard severance forms to determine whether their provision might inadvertently commit an unfair labor practice and whether these provisions add value to the severance arrangements.

The NLRB’s McLaren decision can be accessed here.

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