Nondisparagement clauses have long been a staple in settlement agreements between employers and employees as a way to discourage disgruntled employees from debasing the company after they have departed. Nondisparagement clauses often require employees to refrain from saying anything negative about their former employer at all. But employers should keep a few things in mind to ensure that the use of a nondisparagement clause does not create additional risk for the company.
Keep an Eye Out for Activity by the National Labor Relations Board (NLRB)
The NLRB has signaled it may revisit current Board precedent holding nondisparagement agreements in employee settlement agreements are legal-meaning employers should watch out for Board action or decisions reverting to restrictions on nondisparagement agreements. On August 12, 2021, in her first memo as NLRB General Counsel, Jennifer Abruzzo issued a Mandatory Submissions to Advice Memorandum, setting forth that NLRB Regional Directors, Officers-in-Charge, and Resident Officers must submit certain types of cases to the NLRB Division of Advice (“Advice”) (which, in addition to other duties, provides guidance to the NLRB’s Regional Offices regarding difficult and novel issues arising in the processing of unfair labor practice charges).
Abruzzo identified 11 areas of Board case law involving doctrinal shifts from previous Board precedent that the Board, through submissions to Advice, would be examining-including “cases finding that separation agreements that contain…nondisparagement clauses…lawful.”
Abruzzo highlighted cases involving the applicability of Baylor University Medical Center, 369 NLRB No. 43 (2020), overruling Clark Distribution Systems, 336 NLRB 747 (2001), and International Game Technology, 370 NLRB No. 50 (2020) to be submitted to Advice for review.
Before it was overruled, Clark Distribution Systems stated that a provision in the confidentiality clause of a severance agreement prohibiting the employee from voluntarily appearing as a witness, voluntarily providing documents or information, or otherwise assisting in the prosecution of any claims against the company unlawfully chilled the employees’ Section 7 rights under the National Labor Relations Act (NLRA)(which guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” as well as the right “to refrain from any or all such activities.”)
The provisions at issue in the severance agreements in Baylor University Medical Center included a “No Participation in Claims” provision in which the departing employee agreed not to assist or participate in any claim brought by a third party against Baylor (unless compelled by law to do so), and a “Confidentiality” provision in which the employee agreed to keep confidential any of Baylor’s confidential information made known to the employee during their employment. The complainants alleged that by offering the severance agreements with these provisions, Baylor violated Section 8(a)(1) of the NLRA (which makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7” of the Act). The Board disagreed, in part because the severance agreement only pertained to postemployment activities having no impact on terms and conditions of employment. The Board also found that Baylor’s mere offer of the separation agreement was not coercive or otherwise unlawful, and that there was no sign that the agreement was offered under circumstances that would tend to infringe on the separating employees’ exercise of their own or their co-workers’ Section 7 rights.
International Game Technology (IGT) applied Baylor to a separation agreement with a nondisparagement clause, finding in that case that the severance agreement at issue was entirely voluntary, did not affect pay or benefits that were established as terms of employment, and was not offered coercively-and the nondisparagement provision did not tend to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights under the Act.
What to do?
What should employers do now given the NLRB review of cases applying Baylor and International Game Technology to ensure they don’t run afoul of the NLRA when using nondisparagement clauses in settlement agreements with employees? Employers should:
- Keep an eye out for changes in the law stemming from the NLRB’s review of cases applying Baylor and International Game Technology.
- Use precise language to make it clear that a nondisparagement clause only applies at the time of and after termination, to avoid claims that the terms of the clause interfere with an employee’s Section 7 rights under the NLRA.
- Consult with counsel regarding the possibility of using a savings clause stating that the severance agreement, and specifically the nondisparagement clause, are not intended to prevent the employee from engaging in protected activity under the NLRA.
Consider How “Silenced No More” Acts and Similar Laws May Apply to Restrict Nondisparagement Clauses
Employers should also be aware of “Silenced No More” Acts, passed in the wake of the #MeToo movement, and how they may limit or impact nondisparagement clauses. California and Washington both recently enacted “Silenced No More” Acts restricting nondisparagement clauses (and nondisclosure clauses) in settlement agreements with employees.
Under California’s SB 331 (signed into law on October 7, 2021 by California Governor Gavin Newsom and effective January 1, 2022), an employer cannot require an employee to sign a nondisparagement agreement that has the purpose or effect of denying the employee the right to disclose information about unlawful acts in the workplace. And if an agreement does include a nondisparagement clause, the agreement must also include the following language (in substantial form): “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”
Washington State’s Silenced No More Act (Engrossed Substitute House Bill 1795) was signed into law on March 24, 2022, and prohibits employers from requiring or requesting that workers sign agreements containing nondisparagement (or nondisclosure) provisions restricting their right to discuss factual information related to claims of illegal discrimination, harassment, sexual assault, retaliation, wage and hour violations, or any other conduct “that is recognized as against a clear mandate of public policy.” Washington State’s Silenced No More Act will go into effect on June 9, 2022.
Even states that don’t place explicit limits on nondisparagement clauses in employee settlement agreements may have restrictions that effectively limit the scope of nondisparagement clauses. For instance, amendments to the New York Human Rights Law (NYHRL) passed in the wake of the #MeToo movement requires that if an employee has raised claims of discrimination, harassment or retaliation and the employer and employee enter into a settlement agreement to resolve those claims (in whole or in part), employers are prohibited from requiring employees to keep the underlying facts and circumstances of those claims confidential-meaning the scope of a non-disparagement clause may be restricted just by virtue of the employee having the ability to discuss those facts and circumstances. (Note that in New York, if the employee prefers to include a confidentiality provision, the preference must be memorialized in a separate agreement signed by all parties.)
More jurisdictions are expected to join the ranks of California, Washington and New York as employee advocates champion legislation restricting employers’ ability to quiet workers at both the state and federal level. Employers should stay aware of any new legislation restricting nondisparagement clauses, and:
- Review form nondisparagement agreements, separation agreements and other documents to ensure they comply with applicable law.
- Work with counsel to determine which employment agreements must be revised, as some nondisparagement clauses may be able to be retained depending on applicable law.
- Modify any form nondisparagement agreements to include any required language regarding the employee’s right to disclose information about unlawful acts in the workplace.
- Train employees who act as company representatives on these matters (including HR executives) on the new law.
Rein in Requests from Employees for Mutual Nondisparagement Clauses
Employers entering into settlement agreements with employees may find themselves fielding requests for mutual nondisparagement clauses-where, in return for an employee’s agreement not to disparage the employer, “the Company” agrees not to disparage the employee.
It is near impossible for an employer to honor a mutual nondisparagement clause where “the Company” agrees not to disparage the employee. “The Company” is broad and can include many individuals-such as officers, directors, agents, and employees-and a mutual nondisparagement clause could require all of these individuals to refrain from disparaging the departing employee, a practically impossible feat.
What to do?
If an employer is inclined to grant the request for a mutual nondisparagement clause (as opposed to rejecting it outright), the employer should:
- Promise to instruct only certain key individuals not to disparage the former employee. These individuals might include Company executives and the employee’s manager / supervisor.
- Be specific in the mutual nondisparagement provision about who the Company will instruct to refrain from disparaging the former employee.
- Maintain documentation of the instruction to the key individuals as proof that the company completed its obligations.
Though nondisparagement clauses have long been commonplace in settlement agreements between employers and employees, employers should keep an eye on current developments in this area.