New NLRB Ruling Restricts Employers' Use of Confidentiality and Non-Disparagement Provisions in Separation Agreements

Tuesday, April 25, 2023

Employers need to take note of the recent ruling by the National Labor Relations Board (NLRB) on the use of confidentiality and non-disparagement provisions in employment separation agreements. The ruling imposes more restrictions on employers and their ability to include such provisions in separation agreements.

The NLRB found that a hospital had committed unfair labor practices by requiring laid-off employees to sign non-disparagement and confidentiality provisions in exchange for severance payments. The board concluded that the provisions prevented employees from exercising their protected rights under the National Labor Relations Act (the “Act”), which prohibits employers from interfering with, restraining, or coercing employees from exercising their rights.

This ruling is significant because employers could be held liable for unfair labor practices simply by proposing separation agreements with improper confidentiality or non-disparagement provisions. Employers may face monetary penalties and other sanctions, even if they never attempt to enforce the provisions. Therefore, employers must immediately begin using separation agreements that have been updated to comply with the new NLRB standard.

The ruling only applies to non-managerial employees, as managers and supervisors are not protected under the Act. Employers should also review recently executed separation and severance agreements from the past six months to identify agreements with confidentiality and non-disparagement terms and prepare for potential challenges.

Employers can still use some version of non-disparagement and confidentiality provisions, provided that they have carve-outs for employees’ protected rights and that they carefully define key terms such as “disparagement”. 

While it is unclear whether the ruling may apply retroactively to existing agreements, employers must be cautious when proposing separation agreements to employees and should seek legal advice from experienced employment and labor attorneys to ensure compliance with the NLRB’s new standard. Employers should also be aware that the ruling could be appealed, and federal appeals courts could overturn it in the future.

In conclusion, employers must review and update their separation agreements to comply with the new NLRB standard. Employers must also exercise caution when proposing separation agreements to employees and consult with experienced legal counsel to navigate this complex terrain.

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