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In the Wake of the FTC's Proposed Ban on Non-Competes, NLRB Ruling Now Puts Non-Disclosure and Non-Disparagement Provisions On The Chopping Block

For the second time in a matter of months, a federal agency has put another nail in the coffin for provisions in employment and severance agreements that protect employers from a departing or terminated employee’s harmful post-employment conduct.

Following in the wake of the Federal Trade Commission’s proposed rule that would effectively eliminate most non-competition agreements, the National Labor Relations Board’s (NLRB) Feb 23, 2023 ruling in McLaren Macomb calls into serious question the enforceability of any non-disclosure or non-disparagement provisions in severance agreements and employment contracts.

In its ruling, the NLRB held that requiring a laid-off employee to sign a non-disclosure and non-disparagement agreement as a condition of receiving severance benefits violates the employee’s rights under the National Labor Relations Act (NLRA).

Specifically, the board found that “a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their [NLRA] Section 7 rights, and that employers’ proffer of such agreements to employees is unlawful.”

While the McLaren decision concerned severance agreements, subsequent guidance issued by the NLRB’s general counsel on March 23, 2023 makes clear that similar non-disclosure and non-disparagement provisions in other employment documents that have the same effect may also be unlawful. “Overly broad provisions in any employer communication to employees that tend to interfere with, restrain or coerce employees’ exercise of Section 7 rights” are also prohibited by the NLRA, the guidance states.

Ruling Applies To Unionionized and Non-Unionized Employees Alike

Section 7 of the NLRA 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.” While that language may sound like it only applies to unionized workers, Section 7 applies to all nonmanagerial or nonsupervisory employees (except airline and railroad employees), whether in a unionized workplace or not.

Why The Board Held That Non-Disclosure and Non-Disparagement Agreements Are Unlawful

McLaren involved 11 furloughed employees who signed severance agreements that contained common non-disclosure and non-disparagement language that the NLRB ultimately found unlawful. This included the employees agreeing not to disclose the terms of the severance agreement to third parties and agreeing “not to make statements to Employer’s employees or to the general public which could disparage or harm the image of Employer…”

The board determined that “[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the Act.” Accordingly, “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.”

Not only did the NLRB hold that such agreements were unlawful, but it also ruled that simply proposing provisions that restrain employees from discussing the terms of their employment or severance violates the NLRA:

Where an agreement unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights, the mere proffer of the agreement itself violates the Act, because it has a reasonable tendency to interfere with or restrain the prospective exercise of Section 7 rights, both by the separating employee and those who remain employed.

Recent NLRB Guidance: Retroactive Effect, Protection of Trade Secrets Still OK

The McLaren ruling has understandably caused great concern as well as confusion among employers that include non-disclosure and non-disparagement provision in employment and severance agreements. As noted, the NLRB recently attempted to clarify matters in a memo from its General Counsel which sought to provide “guidance on the decision’s scope and effect.”

The lengthy memo does expound upon McLaren in ways that are both positive and negative for employers. Key takeaways include:

  • Retroactive effect. The NLRB will apply the decision retroactively such that agreements proffered to employees before February 21, 2023 may be subject to challenge. 
  • Employers can still protect trade secrets and proprietary information. Narrowly tailored confidentiality clauses that restrict the disclosure of trade secrets or proprietary information are permissible, so long as they are for a limited period and premised on protecting legitimate business interests.
  • Financial terms of a severance agreement can remain confidential. Language requiring that the financial terms of the agreement be kept confidential is also permissible.
  • Violative provision won’t nullify entire severance agreement. The NLRB typically would seek to have unlawful provisions “voided out as opposed to the entire agreement, regardless of whether there is a severability clause or not.”
  • Supervisors not covered. The memo confirms that McLaren does not apply to agreements or employee communications strictly for supervisors. 

Along with the aforementioned FTC proposed rule on non-competes, the NLRB’s ruling should prompt business owners to meet with experienced counsel to review or modify not only severance agreements but also any employment agreements that may be implicated by the ruling.

If you have questions about the impact of the McLaren ruling on your business and employment practices, please contact the employment law attorneys at Latimer LeVay Fyock for assistance.