Non-Disparagement and Confidentiality Provisions in Employee Agreements: Recent Legal Developments and Their Implications for Employers

Employers have traditionally used non-disparagement and confidentiality provisions to manage threatened or actual claims by employees. Such provisions restrict the spread of information about an employer or their practices and protect sensitive information about the company. However, in recent years, legal decisions have raised questions about the permissibility of such provisions. This article examines these recent developments and their implications for employers.

Recent legal developments

Recent legal decisions have brought into question whether and when non-disparagement and confidentiality provisions in employment agreements are permissible. In particular, the decision in McLaren Macomb, 372 NLRB No. 58 (2022) by the National Labor Relations Board (NLRB) has cast doubt on the legal validity of such provisions. The NLRB held that such provisions in severance agreements have a tendency to interfere with employees’ rights under Section 7 of the National Labor Relations Act (NLRA).

The Impact of McLaren Macomb Hospital on Employee Rights under Section 7

Section 7 of the NLRA is a key piece of legislation that protects employees’ rights to engage in concerted activities. These activities include actions by employees to improve their working conditions or unionizing efforts. Furthermore, Section 7 protections apply to all non-supervisory employees, regardless of whether they are unionized. The decision in McLaren Macomb created a potential conflict between employees’ Section 7 rights and non-disparagement and confidentiality provisions in severance agreements, raising concerns about the validity of such provisions.

Section 7: Rights and Coverage

The coverage of Section 7 rights is extensive, and it includes a broad range of activities by employees to improve their working conditions. The protections offered by Section 7 apply not only to unionized employees but also non-unionized ones. This means that all employees, whether they are part of a union or not, are entitled to engage in concerted activities.

The opinion of the NLRB (National Labor Relations Board) General Counsel

Following the decision in McLaren Macomb, the NLRB’s General Counsel issued an opinion that explicitly addressed the validity of non-disparagement and confidentiality provisions. The General Counsel’s opinion stated that confidentiality provisions in employment agreements are unlawful unless they are “narrowly tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications.” Similarly, non-disparagement clauses are prohibited under the opinion unless they are “narrowly tailored, justified,” and “limited to employee statements about the employer that meet the definition of defamation.”

Implications for other employment agreements, policies, and communications

The NLRB General Counsel’s opinion has implications beyond just severance agreements. It also covers other employment agreements, policies, and communications. This means that employers will need to ensure that their employment agreements, policies, and communications do not include non-disparagement and confidentiality provisions that violate the opinion. This may lead to substantial revisions of employment contracts for employers to comply with the law and reduce potential litigation risks.

The General Counsel’s Opinion and Future Challenges for Employers

While the General Counsel’s views do not have the force of law, they signal potential future challenges that employers may face. Companies may have to adopt new policies or revise existing ones to comply with the opinion and avoid potential legal challenges. It is important to note that this is an evolving area of law, and there is still room for debate among courts and regulatory agencies regarding these issues.

Recommendations for employers

It is crucial for employers to review their employment and severance agreements and policies to ensure compliance with the NLRB’s decision in McLaren Macomb and the General Counsel’s opinion. Employers are advised to consult with legal counsel to evaluate any potential litigation risks and to revise their employment agreements, policies, and communications in light of these developments. Failure to comply with these legal requirements may result in costly consequences for companies.

The recent legal developments regarding non-disparagement and confidentiality provisions in employment agreements have significant implications for employers and their potential litigation risks. Employers need to take proactive measures to ensure that their employment agreements, policies, and communications comply with the evolving legal landscape, or they may face significant legal consequences. Consultation with legal counsel is critical in assessing the situation and addressing any potential legal risks.

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