Many employers include confidentiality and non-disparagement clauses in severance agreements. However, at both the State and federal levels, certain confidentiality and non-disparagement language may render an entire severance agreement unenforceable.
In California, it is an unlawful employment practice for an employer to prevent an employee from disclosing information about unlawful acts of harassment, discrimination, or retaliation in the workplace in “any agreement related to an employee’s separation from employment… .” The law requires the following language to be included in a severance agreement:
“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.”
California law also requires severance agreements with releases of liability to contain language advising employees to consult with counsel and provide a period of time of not less than five days to do so. An employee may choose to sign a severance agreement in less than the five-day period, but they must do so in a “knowing and voluntary” manner and not induced by the employer’s “fraud, misrepresentation, or threat to withdraw or alter the offer.”
Federally, the National Labor Relations Board (“NLRB” or “Board”), found unlawful confidentiality and non-disparagement clauses in a severance agreement with the following language:
Confidentiality Agreement. The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.
Non-Disclosure. At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee’s employment. At all times hereafter, the Employee agrees not to make statements to Employer’s employees or to the general public which could disparage or harm the image of Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.
The Board held that the confidentiality clause was illegal because it prohibited employees from sharing the terms of the severance agreement with “any third person.” Federal labor protections, the Board stated, “extend to employee efforts to improve terms and conditions of employment or otherwise improve their lot as employees through channels outside the immediate employee employer relationship.” “These channels include administrative, judicial, legislative, and political forums, newspapers, the media, social media, and communications to the public that are part of and related to an ongoing labor dispute. The Board took particular issue with the fact that the confidentiality clause prohibited the employee from “discussing the terms of the severance agreement with his former coworkers who could find themselves in a similar predicament facing the decision whether to accept a severance agreement.”
The Board ruled that the non-disparagement clause was overbroad in that it covered any labor-related issue, dispute, or employment condition concerning employment. The Board also found the non-disparagement clause excessive in its application because it encompassed not only the employer but also its officers, directors, employees, agents, and representatives. Finally, the Board pointed out that the non-disparagement clause lacked a time limit, which suppressed all forms of communication indefinitely.
The Board held that even offering such terms in a severance agreement “has a reasonable tendency to restrain, coerce, or interfere with the exercise of Section 7 rights by employees.”
The Board’s decision did not comment on employers’ rights to safeguard trade secrets, or confidential and proprietary information. Arguably these can be protected through a narrowly tailored confidentiality clause. On the other hand, the decision strongly suggests a confidentiality clause with a blanket prohibition on discussing an agreement’s terms will be deemed unlawful. Also, a non-disparagement clause that narrowly defines “disparagement,” that limits the scope of disparagement to “past employment,” and/or that contains a reasonable temporal restriction may survive scrutiny.
At the federal level, it is important to remember that the rights discussed by the NLRB do not apply to management personnel and supervisors. However, an analysis is often needed to determine whether a worker qualifies as an excluded manager or supervisor.
There is no authority yet as to whether the California Government Code’s language quoted above would be sufficient to satisfy the federal requirements. Nevertheless, both the California Government Code and the NLRB’s decision highlight the importance of carefully crafting and reviewing severance agreements to ensure compliance with the law while safeguarding the interests of both employers and employees.
1. Government Code § 12964.5
2. Government Code § 12964.5
3. Government Code § 12964.5
4. McLaren Macomb and Local 40 RN Staff Council, Office and Professional Employees, International Union (OPEIU), AFL–CIO. Case 07–CA–263041
5. McLaren at pp. 5, 6.
6. McLaren at p. 9.
7. National Labor Relations Act (NLRA), specifically Section 7, bars employers from taking action that have a reasonable tendency to inhibit or coerce employees in their ability to discuss their employment terms and conditions with colleagues and others. The NLRB has long identified this right as the core of Section 7’s protected activities.