The National Labor Relations Board (NLRB) recently ruled that nondisclosure and nondisparage provisions in severance agreements violate Section 7 of the National Labor Relations Act (NLRA). The NLRB noted provisions requiring an employee to keep the terms or existence of a severance agreement confidential or prohibiting disparagement of the employer, its affiliates, officers, managers or employees are unlawful because those provisions restrict an employee’s right to engage in concerted activity.
The NLRB opined that an employer’s offer of severance in exchange for agreeing to such provisions is “itself an attempt to deter employees from exercising their statutory rights at a time when employees may feel they must give up their rights in order to get the benefits provided in the agreement.” The decision reverses two NLRB decisions issued in 2020, which held that such provisions in severance agreements were not unlawful, noting that, among other things, employees voluntarily entered into them.
The NLRB’s opinion addressed severance agreements for furloughed employees that contained two provisions the NLRB found violated former employees’ Section 7 rights. The confidentiality provision at issue prohibited disclosing the severance agreement or any of its terms to anyone except an employee’s spouse, tax or other professional advisors, or if compelled to do so by a court or administrative agency. The NLRB held the employee would be barred from disclosing any unfair labor practices or the severance agreement to the employee’s coworkers or the NLRB. The nondisparage provisions in the agreement prohibited the employee from making any statements to other employees or the general public which would disparage or harm the image of the employer, its affiliates, officers, directors, employees, agents and representatives. These provisions were similar to those addressed in the reversed 2020 NLRB opinions and did not include language prohibiting disparagement of the employer’s products or services.
The NLRB held that an employer’s mere offer of an agreement requiring an employee to give up their Section 7 rights violates the NLRA whether the employee accepts the agreement or not. Section 7 is intended to permit employees to discuss what they perceive as unfair labor situations. The NLRB noted Section 7 does not protect communications “[un]related to an ongoing labor dispute or when the communication is so disloyal, reckless or maliciously untrue.”
We disagree with the NLRB and believe employees and employers should be able to enter into mutually beneficial agreements if they wish. Severance is not an employment right but a benefit that an employer chooses to offer its employees, which the NLRB opinion ignores in its analysis. Agreements outside the context of the employment relationship typically include exchanging something in return for receiving something else, such as payment of money to a seller in exchange for a car or house; this is the nature of an agreement. There is no reasonable support for denying the application of that same premise to the employment relationship. Employers often offer severance to employees to resolve a dispute with an employee or as a courtesy to assist an employee in transitioning to a new position. Employers desire severance payments to be confidential because severance benefits are not employment rights and are not paid to all employees. As for provisions prohibiting disparagement, those are usually mutual as employees have as much interest in ensuring the employer does not disparage them as the employer does in ensuring the business, its services or products, leaders or other employees are not disparaged.
The NLRB’s opinion did not address any nondisparagement provision that applies to an employer’s services or products, nor did it address an employer’s right to ensure its proprietary and confidential information remains confidential. Prohibiting an employee or former employee from disparaging the employer’s products or services or revealing the employer’s proprietary and confidential information does not infringe on NLRA rights. It does not prohibit an employee from discussing the terms and conditions of employment with coworkers, which is the crux of the NLRA’s Section 7 rights. Most severance agreements already state the agreement does not restrict an employee’s participation in any federal or state agency investigation. However, employers concerned with running afoul of the NLRB’s latest directive may also consider adding provisions that state the agreement does not prohibit an employee from assisting coworkers by disclosing information to the NLRB or making comments detrimental to the employer’s reputation.