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Are Confidentiality and Non-Disparagement Clauses Illegal?

Posted by David P. Martin | May 23, 2023 | 0 Comments

They just might be if they implicate the National Labor Relations Act. The National Labor Relations Board (“NLRB”) recently released a decision on February 21, 2023, finding by a 3 to 1 vote that such clauses violate section 7 of the National Labor Relations Act per se. Previously, such clauses were legal under the Act unless there was also a discharge or other unfair labor practice, and the employer had exhibited animus toward exercising section 7 rights under the Act. That has been the test since 2020 under Baylor University Medical Center 369 NLRB No. 43 (2020).

In a matter known as MacLaren Macomb and Local 40 RN Staff Counsel 372 NLRB No. 58 (February 21, 2023), the board found that such clauses necessarily restrict section 7 rights and therefore are unlawful without any need to inquire further into the circumstances. Section 7 of the Act guarantees employees the right to self-organize, to form, join or assist labor organizations, “… to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection”… As well as the right to “refrain from any or all such activities.”

The Act is also broad, as it applies to virtually any employer engaged in interstate commerce and meeting such engagement's relatively minimal monetary requirements. Many misunderstand the Act to apply only to labor unions, but indeed it can apply to a mom-and-pop shop. Thus, a release that gives up claims under the Act, as well as other claims, and contains such clauses may have an issue.

The Act requires the employer to negotiate and communicate with the representative. In particular, Section 8 of the Act has further requirements limiting notice to the union or representative of the employees when an employer begins to take steps to furlough or lay off employees. Thereafter, it must negotiate directly with the union or representative and not contact the employees to negotiate their furlough or layoff. That is especially the case if it is permanent.

In this MacLaren Macomb matter, those provisions were violated when a hospital in Mt. Clemens, Michigan, permanently furloughed 11 employees when it determined during Covid restrictions that they were nonessential. The government had issued regulations prohibiting the hospital from performing elective and outpatient procedures and allowing nonessential employees to work inside the hospital. The hospital followed that regulation and terminated outpatient services and only admitted trauma, emergency, and Covid 19 patients.

First, the furlough of the 11 employees was temporary, but as Covid dragged on, the 11 employees were permanently furloughed. They each were presented with a severance agreement, waiver, and release of all claims. That agreement provided money to the 11 employees, and in exchange, they were releasing all claims but also agreed to the confidentiality of the agreement's terms and the employer's non-disparagement. All 11 signed the agreement and accepted the money.

The union, however, took exception as it was not provided notice of this intended action before it occurred, and all communications were directly with the 11 employees. This violated sections 8 (a)(1) and (5). The Administrative Law Judge found as much, but then under NLRB precedent known as Baylor University Medical Center, did not find that the elements of the Baylor test were met – discharge or an unfair labor practice and animus toward section 7 rights by the employer. However, the general counsel for the NLRB persisted with the matter and took this to the full board, which then overruled the Baylor test and found these types of clauses unlawful per se due to their conflict with the Act.

Releases can be overly broad. If claims under the Act are also surrendered, there is likely a problem if these clauses are present. Employers must also be careful with such clauses when addressing other employment law-related matters that could implicate the Act.

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David P. Martin

Senior & Managing Attorney

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