Seven NLRB General Counsel Tips on Confidentiality Limits in Severance Agreements

A month after the NLRB ruled that a severance agreement with confidentiality and non-disparagement restrictions violated the NLRA, the NLRB general counsel provided insight on the future of these clauses in severance agreements. The March 22 memo by General Counsel Jennifer A. Abruzzo addressed several common concerns and inquiries in the aftermath of the case.

This memo does not constitute precedential authority under the law and is not even binding to the Board. Nevertheless, it offers practical guidance and sheds light on the ultimate position of the Board. Keep reading for key takeaways and what employers should do next.

1. Lawful Confidentiality Clauses

The memo outlined two examples of lawful confidentiality clauses:

• • Clauses that only restrict the dissemination of proprietary information or trade secrets for a limited time and based on legitimate business justifications
  • Clauses that require that the financial terms of a severance agreement (i.e. the severance amount) be kept confidential

2. Lawful Non-Disparagement Clauses

While general non-disparagement requirements are banned, the memo explained that restrictions are permitted to prevent employees from making statements that are “maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity.”

3. Effectiveness of Savings Clauses and Disclaimers

The memo clarified that savings clauses and disclaimers can be useful in some contexts to resolve ambiguity but may not be sufficient to cure overly broad confidentiality and non-disparagement clauses, including those that send mixed or inconsistent messages. The general counsel created a detailed, nine-point “model prophylactic statement of rights” that “affirmatively and specifically sets out employee statutory rights.” Presumably, the inclusion of the statement of rights in conjunction with a savings clause cures overly broad confidentiality and non-disparagement clauses.

4. Retroactive Effect and Statute of Limitations

The ruling will be applied retroactively to include severance agreements proffered prior to Feb. 21. The general counsel outlined a six-month statute of limitations for unlawful proffers of agreements. However, the general counsel also explained that charges challenging executed severance agreements containing unlawful provisions will never be time-barred if they contain no expiration date.

The retroactive impact of the decision will likely be subject to court challenge. When determining the lawfulness of retroactive application of an agency’s new rule, courts balance the effects of retroactive application "against the mischief of producing a result which is contrary to a statutory design or to legal and equitable principles."

5. Voluntary Notice to Employees

The memo also outlined that employers may preemptively attempt to remedy violations by telling employees that overbroad confidentiality and non-disparagement clauses in their proffered or executed severance agreements are null and void and will not be enforced. As part of this voluntary notice, employers should also advise that no penalties, monetary or otherwise, will be sought for breaches. The general counsel explained that this voluntary notice could result in a merit dismissal of a charge in some (but not all) cases.

6. Supervisor Protections

The decision does not apply to agreements or employee communications strictly for supervisors. While supervisors are not covered by the NLRA, the general counsel noted that there are circumstances where a supervisor may have NLRA protection, including where the supervisor is retaliated against for refusing to proffer an unlawful severance agreement. 

7. Other Impacts of the Decision

Finally, the memo explained that the enforcement of the decision will extend beyond severance agreements and include other employer communications that infringe on an employee’s rights, such as offer letters. The general counsel stated her intent to expand the scope of the decision to other common employment clauses including noncompetition, non-solicitation, non-poaching and cooperation agreements, as well as broad liability releases beyond employment claims.

Next Steps for Employers

Employers should review and update their standard severance agreements to reduce liability. The ultimate language and approach will depend on each employer and employee’s situation. Employers should also consider whether to take the suggested preemptive remedial action by notifying former employees who signed severance agreements that overbroad confidentiality and non-disparagement clauses will not be enforced. Critically, employers should continue to monitor further development and potential expansion of the decision’s scope to other communications and employment agreement clauses.

Please reach out to Rebecca Sha or any member of Phelps’ Labor and Employment team with questions or for advice and guidance.