It has long been common practice for employers to require a terminated employee to sign a separation agreement as a condition to receiving a severance payment. Such agreements usually include, among other things, the amount and timing of such payments, a general release in favor of the employer (including specific age discrimination waivers if the employee is 40 years of age or older), and non-compete, non-solicitation and confidentiality provisions (or confirm existing such provisions). In addition, such agreements have often required the employee to not disparage the employer and its business and to keep the terms of the settlement confidential (although confidentiality provisions in cases involving resolution of harassment or discrimination claims have been prohibited in some jurisdictions).
In a recent decision, the National Labor Relations Board (NLRB) has ruled that confidentiality clauses that prohibit an employee from disclosing the terms of her or his severance agreement and clause that prohibit an employee from disparaging their employer as conditions to receipt of a severance payment violate such employee’s rights under sections 7 (essentially the right to organize) and 8(a)(1) (prohibiting employers from interfering with section 7 rights) of the National Labor Relations Act (NLRA). Set forth below is a discussion of this ruling, its applicability, and certain related issues.
Which Employers and Employees are Covered by the Ruling? Which are Not Covered?
The NLRB’s authority extends to most US private sector employers and this ruling applies to both unionized and non-unionized employees.
Certain categories of employers are not subject to the authority of the NLRB, namely Federal, state and local government agencies (including public schools, libraries and parks), railways and airlines.
In addition, certain categories of employees are not covered by section 7 of the NLRA, most importantly supervisors and managers with the authority to hire, fire, set pay and discipline workers. In addition, independent contractors, agricultural and domestic workers, and anyone employed by a parent or spouse are not covered by the NLRA. As a result, this ruling does not apply to these individuals.
Are All Confidentiality Provisions Now Prohibited in Severance Agreements?
No. Even if the employee in question is covered by this ruling, the ruling applies only to disclosure of the agreement’s terms and the terms and conditions of the employee’s job (such as wages, hours, health and safety issues, and other matters pertaining to employment). The severance agreement can still prohibit disclosure of trade secrets and other proprietary and confidential information.
Is the Ruling Retroactive?
The ruling does not specify whether it is to be applied retroactively. NLRB decisions are generally presumed to be retroactive unless retroactivity would result in an injustice or be unfair to the employer. In this case, as the confidentiality and non-disparagement provisions were permitted by two 2020 NLRB decisions, a good case could be made that it would be unfair now to penalize employers who relied on that decision. However, the NLRB normally applies a six-month window to bring violations of the NLRA to the NLRB, and it could apply the decision to a severance agreement containing these clauses which was signed or enforced during this period.
What Actions Should Employers Take?
First, unless and until the NLRB ruling is reversed (it is subject to appeal) or overruled, employers should not include provisions pertaining to (a) confidentiality of severance agreement terms, (b) confidentiality regarding terms and conditions of employment, or (c) non-disparagement of the employer, in severance agreements being given to employees subject to the NLRA (as described above).
Second, review general confidentiality provisions in such agreements to ensure that they are not overly broad. Employers are advised to include language in general confidentiality provisions stating that such clauses do not restrict or impede the employee from exercising protected rights (including under section 7 of the NLRA) to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency.
Third, whether an employee falls into the supervisor or manager category can be a grey area. If there’s any uncertainty with regard to a specific employee, consider whether the confidentiality and non-disparagement clauses described above are essential or can be eliminated.
Finally, keep in mind when setting the amount of severance being offered that employees covered by this ruling cannot be prohibited from disclosing this amount to other employees. This is not all that critical if your company has a fixed severance plan or program but can be a concern if amounts are set on a case-by-case basis. An employer who gives a generous severance package to one employee may need to be prepared to justify why that package should not be provided to subsequent employees.
For further information on this ruling or guidance on drafting or revising your severance agreements, please contact David Paseltiner.