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NLRB Finds Confidentiality and Non-disparagement Provisions in Separation Agreement to be Unlawful….Are Handbook Policies Next?

By: Brian Woolley

Submitted by Firm:
Lathrop GPM LLP - Minnesota
Firm Contacts:
Kathryn M. Nash, Mark S. Mathison, Megan Anderson
Article Type:
Legal Update

A National Labor Relations Board (the Board) decision issued this week served notice on employers that they need to carefully consider the use of confidentiality and non-disparagement provisions in any employment-related separation and release agreements. In an Unfair Labor Practice proceeding, the Board reviewed two specific terms of a separation agreement that had been offered by the employer to several employees who were being terminated. The two terms in issue were (1) a requirement that the employee keep the terms of the agreement confidential and (2) a requirement that the employee not make any statements to other employees or to anyone else that might “disparage or harm the image” of the employer. The Board found that both of these provisions were illegal because they interfered with the employee’s exercise of certain rights under Section 7 of the National Labor Relations Act (the Act).

In general, the Act protects the rights of non-management employees in most private-sector companies to engage in group activity aimed at bettering working conditions, including the right to discuss those conditions, as well as the right to file Board charges and participate in Board proceedings. The Board held that the offending provisions could prevent a departing employee from filing a charge with the Board over any allegedly improper conduct by the employer in the past or future. The Board also stated that the language could prevent a departing employee from discussing his or her wages, hours and working conditions with former co-workers and with others outside the company, rights protected by the Act because any kind of negative commentary on these topics could be seen as disparaging. 

The Board decision is not necessarily a total ban on these terms. The Board noted that the two provisions in question were drafted very broadly and that more “narrowly tailored” provisions could pass muster. However, the Board declined to define “narrowly tailored” since the agreement it was reviewing did not make any effort to limit the effect of the problematic language. This perhaps leaves the door open for employers to use confidentiality and non-disparagement language so long as it is clear, through appropriate disclaimer or limiting language, that the provisions are not meant to apply to an employee’s exercise of the rights protected by the Act. 

It is important to note that the Section 7 rights, which formed the basis of the Board’s opinion, are rights available regardless of whether the company’s employees are represented by a union. Therefore, all covered employers, not just unionized companies, should take this into consideration in drafting release agreements for non-management employees who are being separated.  

The Board decision did not indicate whether this analysis would be applied retroactively to existing agreements. The relatively short six-month statute of limitations for filing a Board charge should limit the universe of existing releases which might be subject to a charge. At the very least, an employer may want to carefully consider the risks in attempting to enforce a confidentiality or non-disparagement provision in an existing release agreement.     

This decision may also signal a return by the Board to a more critical review of a wide range of employee handbook policies, including confidentiality and non-disparagement policies applicable to a company’s current employees. As noted in the dissent to the Board decision, the analysis of the language in the separation agreement under review followed the same approach the Board employed prior to 2017 when analyzing employee handbooks. Under that approach, common and arguably benign policies were often found to be invalid because of interference with Section 7 rights. The Board has signaled that a return to this more critical approach is under consideration, and this decision may preview how the Board will address those handbook cases in the future. Thus a review of the employee handbook should also be on every employer’s “to-do” list.

The Board decision is McLaren Macomb, 372 NLRB No. 58 (February 21, 2023).