How do you keep your core business interests and the goings on at your organization confidential when it feels like those strictures are under attack from multiple government entities? It may be time for you to redefine your priorities with respect to confidentiality.
Siege on Confidentiality and Non-Disparagement Clauses
There has, indeed, been something of a siege on confidentiality and non-disparagement clauses in the past five years. Originating with the #MeToo movement and disgust over the behaviors that had been quietly resolved through agreements that ensured the offending conduct would not be discussed with others, legislatures initially at the state, and more recently at the federal, levels have been passing laws prohibiting employers from binding employees to such agreements. As we discussed in our prior articles earlier this year (on federal and New York State confidentiality clause restrictions, multi-state compliance, and contractor agreements), the legislatures have not necessarily limited their restrictions to the types of behaviors reported in #MeToo. Rather the most recent laws go well beyond sexual harassment and sexual assault, to preclude limitations on disclosure of any potentially unlawful workplace behavior.
The myriad variations in these laws can make for cumbersome drafting of confidentiality and non-disparagement clauses, with multiple carve-outs and exceptions. Enter, then, the latest developments in this area, a recent decision by the National Labor Relations Board (the Board) and interpretive guidance issued by the Board’s general counsel, and it may be tempting for some employers to throw their hands in the air.
Recent Board Decision Adds Further Restrictions
In McLaren Macomb, 372 NLRB No. 58 (Feb. 23, 2023), the Board determined that the confidentiality and nondisparagement clauses embodied in an employer’s severance agreements were unlawful because they had a chilling effect on employees’ exercise of their “Section 7 rights” (essentially the right to organize collectively with regard to the terms and conditions of employment as provided under the National Labor Relations Act (NLRA)).
The clauses at issue included:
- a provision that the terms of the Agreement should be kept confidential as to third parties and not be disclosed except to a spouse, for tax or legal advice, or as compelled by a court or administrative agency;
- a provision that “information, knowledge or materials of a confidential, privileged, or proprietary nature” known to the employee through the employee’s job should be kept confidential; and
- a prohibition against statements to employees or the general public that could disparage or harm the image of the employer or any of its affiliated entities and individuals.
The Board determined that the nondisparagement clause had an unlawful chilling effect on employees’ exercise of their Section 7 rights because:
- it was not limited to matters regarding past employment with the employer;
- it was not limited to criticism of the employer’s product or services;
- it applied not simply to the employer but also to affiliated entities and individuals;
- it was not time bound;
- it was broad enough to preclude employee conduct regarding a legally protected labor issue or terms and conditions of employment; and
- employees have a clear legal right to publicize labor disputes provided they do not do so in a manner that is too “disloyal, reckless or maliciously untrue.”
The Board similarly determined that the confidentiality provision was unlawful because it prohibited disclosure to any third person, with limited exceptions. The Board reasoned employees thereby would be inhibited from filing an unfair labor practice charge or assisting a Board investigation into the employer’s use of the severance agreement. The Board also felt the clause would prohibit employees from discussing the agreement with their coworkers or a union, and thereby supporting them with regard to workplace issues.
The Board’s concern about a chilling effect arose from the phrasing of the clauses themselves. The Board therefore held that even if an employer never had or would enforce the clause in a manner that interfered with an employee’s Section 7 rights, the broad words themselves were sufficient to violate the NLRA.
NLRB General Counsel Guidance Expands Restrictions
A month after the McLaren decision, Board General Counsel Jennifer Abruzzo issued interpretive guidance, in which she stated, among other key points:
- the Board’s decision would apply retroactively;
- most likely, only the unlawful clauses in an agreement would be invalidated, and not the agreement in its entirety;
- the Board’s reasoning applies equally to other types of agreements with employees, such as offer letters;
- narrowly-tailored confidentiality clauses that restrict the dissemination of proprietary or trade secret information for a period of time may be lawful;
- narrowly-tailored non-disparagement clauses that preclude maliciously untrue statements that meet the legal definition of “defamation” may be lawful;
- disclaimers or a “savings clause” may be helpful but will not necessarily cure overly broad provisions, and are recommended to enumerate nine specific ways in which employees can exercise their Section 7 rights; and
- a range of other clauses, including noncompetition and nonsolicitation clauses, no poaching clauses, broad releases and covenants not to sue that go beyond employment claims, and cooperation clauses also may be suspect, depending on how they impact employees’ ability to exercise their Section 7 rights.
These new developments are immensely broad in their potential application as they invalidate clauses that are so commonly used as almost to be boilerplate language. Also, while the NLRA protects activity by individual contributors, and not supervisors, it is not always clear who qualifies as a supervisory employee, particularly in a nonunion environment. The General Counsel further cautioned that even supervisors are protected from retaliation for NLRA-protected actions. The NLRA additionally is not limited to unionized workplaces but rather covers every non-supervisory employee throughout the country. Finally, the retroactive application of the McLaren decision means that previously-signed agreements with employees are also at risk of being invalidated.
Employers Can Still Protect Their Core Business Information
So where does that leave employers? As a starting point, the new NLRB restrictions and the series of #MeToo-inspired restrictions have one common thread, in that they all recognize employers have a valid interest in protecting their trade secrets and proprietary information. A starting point, therefore, is for employers to reframe their agreements to separately and concisely protect only those legally recognized interests.
To the extent employers additionally want to ensure that employees will not say bad things about them, or recount information about bad things occurring at the organization, they need to get legal advice. As discussed in our prior articles, employers may be restricted from imposing confidentiality requirements as to certain behaviors, or at certain stages of the employment relationship. These restrictions may be outright prohibitions, or they may take the form of requiring disclaimers, consideration periods or additional waiver language.
Critically, since some of these changes are on a federal level, every agreement between an employer and an employee potentially is impacted. One issue to be discussed with legal counsel is whether, and to what extent, the employer wants to include in its agreements a disclaimer as to the types of employee activities that are not subject to a confidentiality or nondisparagement clause. At some point, the exceptions begin to swallow the rule and call into question the efficacy of having broad confidentiality or nondisparagement language.
Revisit Agreements with Legal Advice
The NLRB’s recent pronouncements are not the death knell for confidentiality and non-disparagement agreements. They do, however, necessitate revisiting those agreements, even if they were last reviewed as recently as February 2023, and identifying the information that an employer considers most critical to preserve as confidential, and the information as to which employers may need to tolerate some vulnerability of disclosure. Employers that take no action at this time and keep their current agreements in place run the risk that their confidentiality and non-disparagement clauses will be invalidated in their entirety, leaving the employer with no protection of even its core business interests.
By Tracey I. Levy