The Board’s General Counsel issued a memo stating a recent NLRB case restricting the use of confidentiality provisions in severance agreements applies retroactively, meaning that already existing severance agreements could now be illegal under federal labor law. The memo’s guidance on what kinds of severance agreements are now lawful or unlawful hinges on how “narrowly tailored” they are to protect proprietary or trade secret information or prevent “malicious or defamatory” statements about the company.
Background: Last month, the Board ruled in McLaren Macomb that severance agreements violate federal labor law if their provisions – including non-disclosure, non-disparagement, and other confidentiality provisions – restrict or interfere with an employee’s right to concerted activity under the NLRA. One of the decision’s many outstanding questions is whether the ruling would be applied retroactively to already existing severance agreements.
General Counsel Abruzzo’s new memo makes it clear that the new prohibitions do, in fact, apply to existing severance agreements. Specifically, “maintaining and/or enforcing a previously-entered severance agreement” with unlawfully broad confidentiality provisions is a violation of federal labor law.
Are any confidentiality provisions lawful now? According to Abruzzo’s memo, “confidentiality clauses that are narrowly-tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications may be considered lawful.” Meanwhile, non-disparagement clauses are only lawful when they are specifically limited to malicious or defamatory statements about the company. Finally, disclaimers, or “savings clauses” that state that nothing in a severance agreement should be interpreted as restricting employee rights do not necessarily “cure overly broad [and therefore unlawful] provisions.”
The memo illustrates the Board and its General Counsel’s stance that only very limited confidentiality, non-disparagement, and/or non-disclosure clauses in severance agreements are lawful under federal labor law. Indeed, it is difficult to envision any severance agreement that limits a former employee’s ability to talk about the company holding up in the eyes of the current Board.
Outlook: The Board’s decision is currently being appealed in federal court. In the meantime, employers should take a close look at all existing and future severance agreements to ensure that they do not contain any broad confidentiality provisions.