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Human Resources

Kristen Prinz
In Insights

Did the NLRB Just Ban Confidentiality and Non-Disparagement Agreements?

Reading Time: 3 minutes

On February 21, 2023, the National Labor Relations Board (NLRB) issued a decision in McLaren Macomb holding that confidentiality and non-disparagement provisions in severance agreements were prohibited under the National Labor Relations Act (NLRA). See McLaren Macomb, 372 NLRB No. 58 (2023). The Board found that these terms unlawfully interfered with employees’ rights under Section 7 of the NLRA to publicly discuss working conditions.

Who Is Affected?

Many people misconstrue the NLRA’s impact to be limited to union employees. In fact, the protections of the NLRA apply to most private sector employees and employers, excluding management and supervisory employees. This means that most employee separation agreements may be affected by this ruling. Even employment agreements and confidentiality agreements that contain non-disparagement terms may need to be revised as a result of the McLaren Macomb decision.

The employer in McLaren Macomb offered furloughed employees severance agreements that contained a confidentiality provision preventing the employees from discussing the terms of the agreement. The agreements also included a non-disparagement provision requiring the employees to refrain from disclosing the employer’s confidential information and from disparaging the company to employees or the general public.

Section 7 of the NLRA gives broad rights relating to employees’ ability to speak about the employer and the terms and conditions of employment with coworkers and the public. It is a violation of Section 7 for an employer to prohibit or to interfere with employees’ ability to speak about working conditions. The Board has issued rulings in the past related to employees’ social media posts and employment policies in employers’ handbooks.

What Did the NLRB Say?

In McLaren Macomb, the Board found that the employer’s offer of severance agreements containing these terms violated the NLRA. The Board held that the provisions on their face restricted employees from publicly discussing their terms and conditions of employment and otherwise exercising rights under the NLRA. Whether the employees signed the agreements was irrelevant because it was the act of proffering the agreements that violated the NLRA. The Board stated that “[a] severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment.”

In particular, the Board did not like that the agreements’ non-disparagement provision could be read to prohibit employees from asserting that their employer had violated the NLRA in any way. It could also dissuade employees from participating in NLRB investigations into a company’s actions. Similarly, the Board found that the confidentiality clause disincentivized employees from disclosing any of their employer’s potential violations of the NLRA, filing an unfair labor practice complaint, or aiding the NLRB in an investigation. Further, the promise of confidentiality forbade employees from discussing their severance offers with past employees who had already signed the agreements or with others in the workplace interested in organizing.

This holding is an expansion of prior decisions that limited the protections of Section 7 to current employees. By restricting the terms of severance agreements, the Board is espousing a right of employees to discuss the terms of severance agreements with coworkers, whether or not such coworkers are offered similar severance terms.

What Should Employers Do?

This NLRB decision has created concern about previously executed severance agreements. The decision implied that certain carve-out language may be available to employers, meaning that non-disparagement and confidentiality provisions might still be valid under the NLRA as long as they allow for some exceptions, such as talking with other employees about the terms of the agreement. The Board, however, did not offer any specific guidance to ensure employers avoid an unintended violation of employees’ rights.

While the McLaren Macomb decision remains subject to appeal and could be vacated in the future, for now, employers must sift through the uncertainty and cautiously review their standard severance language. It would be wise to work with employment counsel familiar with employment agreements to ensure that employers are remaining compliant as this area of law is rapidly evolving.

Kristen Prinz
In Insights

The Impact of Restricting Mandatory Arbitration

Reading Time: 3 minutes

Employers who use arbitration agreements for their employees now face a new challenge: claims of sexual assault and sexual harassment can no longer be subject to mandatory arbitration. President Biden signed a new law amending the Federal Arbitration Act with this provision on March 3, 2022.

Arbitration is a confidential process for dispute resolution. Litigants can opt to use an arbiter, who is often a practicing attorney, instead of going to court. Employers usually believe that arbitration holds numerous benefits, but employees are not always so sure.

Most arbiters of employment law claims have spent the majority of their careers representing employers. It is difficult not to develop some implicit biases after years of perceiving employment claims primarily from one perspective. One can understand that employers and workers might view arbitration differently.

Arbitration has mainly been favored by employers for its supposed time and cost efficiencies. Proponents of arbitration argue that discovery (the exchange of documents and information that will be used as evidence in a claim) is the principal expense of litigation, and the usually more limited scope of discovery in arbitration makes the private forum more attractive than a court room.

It is true that discovery is the costliest aspect of litigation, but questionable how effective arbitration is at limiting the associated cost. Like most aspects of the legal world, much of the cost of discovery is related to the lawyers and the litigants in a matter.

The confidential nature of arbitration can also appeal to employers, enabling them to avoid the critical eye of the media and any associated reputational harm. But employees have felt that arbitration essentially allows employers to hide their misdeeds, especially when they are repeated.

Nowhere has this concern been more prominent than in the #MeToo movement and its aftermath. #MeToo revealed how confidentiality and arbitration agreements helped mask pervasive issues, particularly sexual assault and sexual harassment in the workplace. Time and time again, arbitration clauses were used to keep workplace misconduct claims quiet, enabling bad behaviors in the workplace to continue unabated. According to employee advocates, if harassment or assault in a workplace had become known, more could have been done to stop it earlier, thereby avoiding subsequent victims. After all, bad behavior thrives when it’s hidden.

Removing mandatory arbitration allows for misconduct claims to be made public. This exposure can be very impactful in terms of pressuring companies to reach a resolution with an individual. The public eye can also lead companies to course-correct and adequately address ongoing toxic workplace cultures. Further, the arbitration ban can incentivize businesses to prevent workplace misconduct before it even starts, leading to healthier workplace environments.

The new law does not enact a total ban on the use of arbitration in sexual harassment and assault cases; it merely prohibits an employer from making it mandatory. That means an employee may still opt for arbitration. Employees may have their own reasons for keeping a claim confidential, and the amended law permits them to choose this option if they desire.

Regardless of whether arbitration is an effective litigation forum for employees, the new law gives employees greater control over where a sexual assault or sexual harassment is litigated. And that control will likely impact other claims because most employee claims of sexual assault are often tied to claims of discrimination, retaliation, or other federal, state, or local claims.

An employer with a mandatory arbitration clause can decide to force some claims to arbitration while allowing others to proceed in court, but then the purported cost savings go out the window. Going forward, employers need to consider their motivations for using mandatory arbitration carefully. And, if they decide arbitration still meets their goals even with the new law, they need to make certain that their mandatory arbitration contract terms comply with the new law.

Prohibiting mandatory arbitration of sexual assault and sexual harassment claims doesn’t mean bad behaviors won’t happen, but with sexual harassment training and a true commitment to a positive workplace culture, employers can minimize bad behaviors that lead to big risk exposure.