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NLRB Rules that Most Confidentiality and Non-Disparagement Clauses in Severance Agreements Violate the NLRA

Posted: 04/24/2023 | Firm News

On February 21, 2023 the National Labor Relations Board (NLRB) held that severance agreements with non-disparagement and confidentiality clauses violate the National Labor Relations Act (NLRA) because they can “chill” the exercise of employees’ rights to collectively band together in efforts to improve the workplace.

Notably, these rights do NOT apply to managers, public sector employees, most supervisors, and some agricultural workers. Additionally, a severance agreement and a settlement agreement are two different things. Settling a disputed claim with a current or former employee should not be confused with offering a severance. Severance agreements are most frequently offered in exchange for a full release, confidentiality and non-disparagement, to an employee that is being terminated.

Many employers assume that because they don’t operate a union shop, they are not subject to rulings by the NLRA. Unfortunately, this is not the case. Similar rulings from the NLRB, like prohibiting employees from discussing wages, have been upheld and continue to be enforced today.

Is there any silver lining for employers?

Yes! To start with, it’s worth stressing that this opinion does not apply to employees who are members of management and most supervisors since they are not afforded Section 7 rights. The ruling is mainly geared towards hourly workers. Moreover, the Board’s own procedural limitation rules bar workers from bringing charges based on violations that occurred outside of the last 6 months. Thus, employer exposure for severance agreements signed under the previous rules is relatively minimal.

Even further, there is discussion of disclaimers within severance agreements that may serve as a workaround for the bans against non-disparagement and confidentiality provisions. Specifically, a broad disclaimer affirmatively allowing employees to participate in Section 7 activities, file charges of Unfair Labor Practices, assist others in doing so, and cooperate with NLRB investigative processes may suffice to allow the restrictive provisions to be included. However, we will only know for sure as time passes and caselaw develops.

Rothberg’s recommendations

For now, employers should immediately cease from including confidentiality and non-disparagement provisions in their severance agreements with hourly employees. Broad disclaimers might eventually prove to be acceptable workarounds, but we will have to hold tight to find out.

If you have any questions, please contact your Rothberg attorney at 260-422-9454.

Rachel J. Guin, Partner|[email protected]
Pat Tilden
, Associate|[email protected]

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