It’s a tale as old as time. A workplace relationship between employee and employer goes sour and becomes antagonistic to the point where separation is necessary. The employee can’t wait to tell their friends and colleagues about the toxic, mismanaged place they just left, and the employer is glad to be rid of a problem employee but concerned that they might spill company secrets or slander the company’s good name. Thus, confidentiality and ‘non-disparagement’ clauses were born, conditions baked into employee severance packages that prevent them from revealing confidential information or disparaging their employer, whether they leave on good terms or bad.
These agreements have long been a point of contention among pro-labor groups, who claim that such conditions are a violation of workers’ rights and prevent reasonable corporate oversight. After years of back-and-forth, the National Labor Relations Board recently issued a decision that will change how these agreements are written and ratified. Our Partner Paul Skeith breaks it all down below.
The Nuts and Bolts of Confidentiality and Non-Disparagement
This week I want to talk about changes that are coming to confidentiality and non-disparagement clauses within employee severance agreements after the February 2023 National Labor Relations Board ruling. Confidentiality and non-disparagement clauses have long been a standard feature of severance agreements. Let’s first talk about their function and how they fit into employee contracts.
Confidentiality clauses typically prohibit an employee from disclosing any confidential or proprietary information about the company, including the terms of the severance agreement itself. The NRLB’s decision determined that such clauses violate the National Labor Relations Act if they are written in a way that prohibits former employees from discussing or disclosing information about the company’s practices, policies, or working conditions with coworkers, unions, or third parties.
Non-disparagement clauses are designed to prevent departing employees from making negative comments about the company or its employees. However, the NLRB also ruled that such clauses must not be so broad as to prevent employees from engaging in protected, concerted activity. According to the Board’s decision, a non-disparagement clause would be unlawful if it prohibits an employer from discussing or criticizing the company’s employment policies, practices, or working conditions with co-workers, unions, or other third parties.
Pro-Employee Ruling Puts Employers in a Difficult Position
So what’s an employer to do with these new restrictions in place? One possible option is to have severance agreements that don’t contain these provisions at all. The question for employers in that situation, though, would be to internally assess how valuable severance agreements are in their contract structure, now that these provisions have been changed.
Another possibility might be to tailor their confidentiality and non-disparagement provisions narrowly and specifically to ensure that employees have the rights that they’re entitled to under the National Labor Relations Act, while still protecting their interests as best they can. With these agreements now heavily curtailed, it is highly encouraged that business owners and/or C-suite executives have a conversation with their attorney about how they should proceed so they can confirm that any and all severance agreements and templates comply with the new ruling in a way that works for both parties.
Business contracts and business law can be very complex to safely navigate. With so many rules and regulations in place, it can be easy to inadvertently find yourself on the wrong side of compliance. If you are in need of experienced guidance, Richards Rodriguez & Skeith’s Business and Transactional Law team may be able to help! Contact us today for a free consultation!