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Further Restrictions on Non-Disclosure and Non-Disparagement Clauses

March 24, 2023

Olivia Hariharan Godt and Kristin Bremer Moore - Tonkon Torp LLP

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Various governmental bodies have recently restricted employers’ ability to use non-disclosure and non-disparagement clauses. This alert briefly covers a few of those recent developments.

The National Labor Relations Board

In McLaren Macomb, the National Labor Relations Board (the “Board”) determined that non-disclosure and non-disparagement clauses contained in a severance agreement violated the National Labor Relations Act (the "Act”) (372 NLRB No. 58).

What did the clauses say?

The employer, a hospital, permanently furloughed several workers during the COVID pandemic and offered them severance agreements. The agreements contained broad non-disparagement and confidentiality provisions. In essence, employees who signed the agreement could not make statements to anyone which disparaged or harmed the hospital or its related entities. The employees were also prohibited from revealing the terms of the agreement to “any third person.”

What was wrong with the clauses?

The Board determined that the broad non-disparagement and confidentiality provisions unlawfully interfered with the employees’ rights under Section 7 of the Act, which include the right to discuss employment terms and conditions, to self-organize, to form, join, or assist unions, and other rights. All non-supervisory employees – regardless of whether they are in a union – have Section 7 rights. And, Section 7 rights extend to former employees, too.

The bottom line is that employers can no longer offer severance agreements which contain non-disparagement and confidentiality clauses that have “a reasonable tendency to interfere with or coerce employees in the exercise of their Section 7 rights.” Importantly, an employer merely proffering the agreement to an employee – even if the employee did not accept – will be deemed a violation of the Act by the Board.

General Counsel Abruzzo’s Memo

Days ago, General Counsel Abruzzo issued a memo interpreting the Board’s McLaren decision. In it, she explains the McLaren decision in more detail:

• Severance agreements are not banned, and only those with overly broad non-disparagement and confidentiality provisions violate the Act
• Overly broad provisions in any employer-employee communication may be unenforceable, not just those contained in severance agreements
• Other overly-broad provisions, such as non-solicitation clauses, no-poaching clauses, broad liability releases, and covenants not to sue may interfere with employees’ Section 7 rights and be deemed a violation of the Act
• The protections of the Act apply to all employees, whether current or former
• The Board will attempt to sever overbroad provisions of the severance agreement instead of invalidating or voiding the entire agreement
• A general savings clause or disclaimer language may not necessarily cure overly broad provisions
• If an employer maintains or enforces a previously-entered agreement with the unlawful provisions, there is no statute of limitations barring a claim by the employee
• The McLaren decision has retroactive effect
• Supervisors may be covered by the Act under certain circumstances, not just non-supervisory employees
• Employees and unions cannot waive Section 7 rights by agreeing to overly broad language in a severance agreement

Importantly, GC Abruzzo’s memo provides examples of narrowly-tailored confidentiality provisions that may be considered lawful, including those that restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justification or provisions that contain a confidentiality clause with regard to non-disclosure of financial terms only. Similarly, the memo outlined examples of narrowly-tailored non-disparagement clauses that are limited to employee statements about the employer that are defamatory and maliciously untrue, such that they are made with knowledge of the falsity or with reckless disregard for the truth or falsity of the statement.

Speak Out Act

President Biden signed the Speak Out Act into law late last year, which makes non-disclosure or non-disparagement clauses unenforceable if agreed to before a dispute involving sexual assault or sexual harassment arises.

Oregon Workplace Fairness Act

Oregon has a similar – but much broader – law called the Workplace Fairness Act (the “WFA”). Under the WFA, employers and employees may only enter agreements containing a nondisclosure, non-disparagement, or similar provision if the employee requests the provision. And, the Act applies to a wide range of discriminatory conduct, not just to instances of sexual assault or harassment. In addition, the Act requires employers to have an anti-discrimination policy meeting certain requirements and contains various notice requirements.

What should employers do?

It is important for employers to not only review current and future severance agreements, but also any agreement or communication that contains non-disparagement or confidentiality clauses – to ensure their agreements comply with these new laws and official guidance, regardless of whether they are in a unionized environment. These are large changes that will likely require re-drafting.

Please reach out to a member of our skilled Labor and Employment team to ensure your agreements comply with these complex laws and decisions.

This update is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have questions about the issues raised here, please contact any of the attorneys in our Labor & Employment Practice Group, or the attorney with whom you normally consult.

About Tonkon Torp

Tonkon Torp LLP is a leading business and litigation law firm serving public companies, substantial private enterprises, entrepreneurial businesses and individuals throughout the Northwest.  For more information, visit tonkon.com.