As a business, it is important to protect your intellectual property and trade secrets. It is also equally as important to protect this pivotal information not only from competitors but also from employees who wish to exploit this information after their employment has been terminated. Most of the time, you can enter into a confidentiality agreement, which is meant to protect a business from these sorts of violations, and grants the employer an enforcement mechanism if it is violated. However, what happens when it violates federal employment law?
What Is a Confidentiality Provision?
A confidentiality provision, sometimes called a nondisclosure agreement, is a legally binding contract where an individual or business guarantees to deal with particular data as a commercial secret and guarantees to not disclose such information to others without correct authorization.
What Is the National Labor Relations Act?
The National Labor Relations Act of 1935 (“NLRA”), also known as the Wagner Act, guarantees the right of private sector employees to organize into trade unions, engage in collective bargaining, and take collective action such as strikes. The NLRA created the National Labor Relations Board (“NLRB”) to enforce, oversee, and regulate the NLRA.
How Do Confidentiality Provisions Affect the NLRA?
On February 21, 2023, the NLRB ruled that confidentiality and non-disparagement provisions contained in severance and separation agreements violate Section 8(a)(1) of the NLRA. The decision only applies to private employers covered by the NLRA, regardless of size and whether the workforce is unionized, and it is effective immediately. As a result, any and all employers who continue to use broad confidentiality or non-disparagement clauses in their severance agreements may face unfair labor practice lawsuits.
The NLRB used a reasonable employee standard and held that broad restrictions tend to interfere with, restrain or coerce, employees’ exercise of their rights under Section 7 of the NLRA, including filing an unfair labor practice claim. The NLRB will find non-disparagement and confidentiality provisions to be unlawful if they: (1) prevent the employee from making a statement that the employer has violated the NLRA to their former coworkers, their union, the NLRB, or otherwise; (2) are not limited to the employee’s relationship with the employer; (3) are not limited in time; or (4) fail to limit their definition for “disparagement” to the narrow circumstances set out in a Supreme Court case from 1953, NLRB v. Electrical Workers Local 1229.
The NLRB’s decision applies whether or not the employee has already been terminated prior to receiving the severance agreement. An employer may be found to violate these provisions by merely offering an agreement of this sort; therefore, even if the employee declines to sign or never seeks to enforce the agreement, if the employer has violated the NLRA, the agreement is unenforceable and an employer may be subjected to lawsuits as well as penalties from the NLRB.
How Does This Affect Employers?
The NLRB’s new ruling affects employers in a very significant way. Employers should review their severance or separation agreements and eliminate any broad confidentiality and non-disparagement clauses. Although employers are still allowed to restrict employees from disclosing proprietary information and trade secrets in severance agreements, these agreements must not be tied to the receipt of severance or separation pay. This notwithstanding, employers are not allowed to bar employees from discussing the terms of the separation agreement with other employees or anyone else, including on social media.
Employers should amend their severance agreements to include language stating that nothing in the agreement restricts the employee’s rights under Section 7 of the NLRA, including contacting the NLRB. It is also recommended that employers inform their employees and supervisors that they are not restricted from (1) discussing their employment or the terms of the separation agreement with their co-workers, (2) assisting other employees with filing a charge, or (3) assisting in the NLRB’s investigative process.
