NLRB Ruling Holds Confidentiality and Non-Disparagement Clauses Violated National Labor Relations Act

March 28, 2023

By: Colin A. Walker

The National Labor Relations Board (NLRB) has issued an opinion holding the confidentiality and non-disparagement clauses in a separation agreement offered to a group of 11 union employees pursuant to a reduction in force violated the National Labor Relations Act (NLRA). Overruling two previous cases, in McLarin v. McComb, the Board held that such clauses are illegal if they “have a reasonable tendency to interfere with, restrain, or coerce employees in their exercise” of rights in the NLRA to engage in concerted activity (Section 7 of the NLRA)—communicating with other employees about the terms and conditions of employment. 

Confidentiality and non-disparagement clauses are common in separation agreements applicable to an individual employee or groups of employees in connection with a reduction in force. Confidentiality agreements typically prohibit employees from disclosing the terms and conditions of the separation agreement to other parties, with exceptions such as disclosure to family, tax advisors and lawyers, or as required by law. Non-disparagement clauses prohibit the employee from making negative statements about the employer, again with similar exceptions. In return, the employee usually receives a specified amount of severance pay.  

Regarding the non-disparagement clause, the Board observed that the clause did not define disparagement, was not limited to matters related to employment, and would not have permitted disclosures regarding alleged violations of the NLRA. Further, the Board noted that there was no time limit for the restriction and it applied to affiliated entities as well as the employer’s officers, directors, employees, agents and representatives. The Board concluded, “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.”
Turning to the confidentiality provision, the Board found that the provision prohibited disclosure to any third party except legal or tax advisors or as required by a court or administrative agency. The language of the clause would have barred the employee from communicating with the Board regarding alleged unlawful activity, communicating with former coworkers, and from communicating with the union (all of the employees were union members) about the terms of the separation.
The Board did not go so far as to say that all confidentiality and non-disparagement provisions in separation agreements are unlawful. But, its detailed discussion indicates that it may be difficult for an employer to craft such provisions in a way that would be lawful under the standards set forth in the decision. One unanswered question is whether a carve-out stating that nothing in the separation agreement should be construed to limit the employee’s right to engage in concerted activity under the NLRA would render the clauses lawful.
On March 22, 2023, the General Counsel of the NLRB, Jennifer Abruzzo, stated that she believes the decision is effective retroactively and, thus, would invalidate confidentiality and non-disparagement clauses which were entered into before the date of the decision, if they were found to have a reasonable tendency to interfere with, restrain, or coerce employees in their exercise of rights under the NLRA. The decision itself was silent on the issue of retroactivity.
It is likely that these issues will be litigated in the federal courts. The standards for confidentiality and non-disparagement clauses in separation agreements will be murky until the federal courts, and possibly the Supreme Court, issue clear rulings on these issues. 
Employers offering employees separation agreements with confidentiality or non-disparagement provisions, and their legal counsel, should read this decision carefully and consider (1) whether it is advisable to have them at all and, (2) if so, how the clauses should be drafted so as not to run afoul of the NLRA.