Employment & Labor Insider

Does your settlement or separation agreement contain non-disparagement or strict confidentiality provisions?

If so, it may not be worth the paper it's printed on.

Not long ago, my colleague David Phippen wrote about a decision from the National Labor Relations Board that invalidated separation agreements that a hospital had entered into with some of its employees in connection with job eliminations. The Board said that non-disparagement and certain confidentiality provisions interfered with the right of employees to engage in "protected concerted activity" and therefore violated the National Labor Relations Act.

Did the Board simply strike the offending provisions from the agreement? No, it did not. The Board found that the entire agreement (which 11 employees had signed) was null and void.

The Board decision seemed to apply to all agreements between employers and their non-supervisory employees, whether the workers had a union or not. In other words, this was a concern not only for labor lawyers but also for those of us who settle discrimination, harassment, retaliation, wage-hour, wrongful termination, and you-name-it claims between employers and their employees.

In other words, it's a concern for everybody.

Since the decision came out in late February, we've been waiting for more guidance from the Board's General Counsel. This week we got it, and for the most part, it's not good. (There are a few rays of sunshine, which I'll save for the later so you can start your weekend on a happier note.)

GC Memorandum 23-05

According to Wednesday's Memorandum from General Counsel Jennifer Abruzzo, an agreement with a "non-supervisory" employee cannot "have overly broad provisions that affect the rights of employees to engage with one another to improve their lot as employees." This includes "accessing the Board, their union, judicial or administrative or legislative forums, the media, or other third parties."

Even if the employee turns down the agreement, the mere offer of an agreement with these restrictions violates the NLRA.

GC Abruzzo also said that this rule applies retroactively, and that agreements with these terms are a "continuing violation," meaning that there is no statute of limitations. So it could apply to agreements entered into last year, or 20 years ago.

In addition to non-disparagement and confidentiality-of-agreement provisions, GC Abruzzo says that certain other terms "might interfere with employees' exercise of Section 7 rights." These include covenants not to compete, no-solicitation/no-poaching clauses, "broad liability releases and covenants not to sue that may go beyond the employer and/or may go beyond employment claims and matters as of the effective date of the agreement," and provisions that require an employee to cooperate with the company in the event of future claims or litigation.

Robin, this post is a bummer. We're ready for those rays of sunshine you promised.

Rays of sunshine

Here's the good news, such that it is . . . 

. . . We thought GC Abruzzo would prohibit all "confidentiality-of-agreement" provisions. This is the paragraph in a separation or settlement agreement that says, "Employee agrees that she will not disclose this settlement or the monetary amount to anyone other than her attorneys, her financial advisers, or her spouse," or words to that effect. Thank heaven the GC Memo specifically says that you can require employees to keep the financial terms of the settlement confidential. You can't require silence about the entire agreement, but it's good to be able to keep the money parts confidential.

. . . All of the above applies only to employees who are not "supervisors" within the meaning of the NLRA (or subject to some other exemption). If your agreement is with a supervisor, you can continue to use your current agreements. Just be aware that under the NLRA, a "supervisor" actually has to supervise employees (in other words, have the authority to hire, fire, discipline, etc., or to effectively recommend those actions). It isn't a synonym for "white-collar employee," "FLSA-exempt employee," "employee with advanced knowledge," or "person who works in an office instead of on the plant floor." I discussed that in more detail in this blog post.

. . . There is a remote possibility that the GC's position will not apply to settlement agreements, as opposed to separation agreements. The GC Memo does not reference settlement agreements at all. On the other hand, it does say that the GC doesn't care about the circumstances under which the agreement was entered. So it's probably safer to assume it applies to both types of agreements. 

. . . We expect an employer or association, such as the U.S. Chamber of Commerce, to challenge the NLRB's position in court. But (1) it could be a couple of years before we get a court decision, and (2) we don't know how a court will rule. In the meantime, employers should proceed as if this GC Memo is controlling.

Stop, Slow, or Go?

With that in mind, here are the options for employers. "Red light" means exactly what you think it means. "Yellow light" means moderate legal risk ("proceed with caution")."Green light" means minimal legal risk. Employers will have to decide how much legal risk they are willing to run. 

RED LIGHT. Do not continue to use your current agreements with non-supervisory employees unless or until we get a court ruling invalidating the NLRB's position.

YELLOW LIGHT. With non-supervisory employees, amend your non-disparagement provisions to apply only to defamatory or "maliciously false" statements about the company. "Defamatory" generally means that the remark is damaging to the company's reputation and that the employee made the remark knowing it was false or with "reckless disregard" as to whether it was true or false. Remove the "confidentiality-of-agreement" provisions from your agreement, except that you can continue to require the employee to keep the financial terms confidential.

GREEN LIGHT. With your true NLRA "supervisors," continue to use your old agreements. With non-supervisory employees, use the same version of the "yellow-lighted" confidentiality-of-agreement provision described above (only the financial terms are confidential). And scrap the non-disparagement paragraph entirely.

I'd like to thank our Labor Relations Practice Group Co-Chair and ConstangyTV star, Leigh Tyson, and Tim Davis of our Kansas City and St. Louis offices and labor lawyer extraordinaire, for leading our firm's effort to address this very important issue. Tim also came up with the red-yellow-green light analogy. (Tim, I hope it was all right for me to borrow your idea. I will pay you back.)