Both locally and nationally, a growing trend continues that disfavors confidentiality, nondisclosure, and nondisparagement provisions in settlement agreements and releases – even if such terms are part of a bargained-for-exchange between the parties. On February 21, 2023, the National Labor Relations Board issued a decision in McLaren Macomb in which it found certain nondisparagement and nondisclosure provisions in a severance agreement violated Section 7 of the National Labor Relations Act. In doing so, the Board overruled two of its own decisions from 2020, which it in turn characterized as “revers[ing] . . . long-settled precedent and replac[ing] it with a test that fails to recognize that unlawful provisions in a severance agreement proffered to employees have a reasonable tendency to interfere with, restrain, or coerce the exercise of employee rights . . . .”
The subject agreement in McLaren Macomb contained the following provision: “At all times hereafter, the Employee agrees not to make statements to Employer’s employees or to the general public which could disparage or harm the image of Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.” The subject agreement did not further define “disparage,” it did not contain a limitation on time, and it did not otherwise include a carve-out for any specific persons (i.e., accountants or government investigators) with whom employees could discuss the agreement’s terms.
The Board found this language interfered with employees’ rights under Section 7 of the NLRA because it “would encompass employee conduct regarding any labor issue, dispute, or term and condition of employment.” The Board also found it violated Section 8 – which makes it an unfair labor practice for an employer “to restrain or coerce employees in the exercise of the rights guaranteed them in Section 7 of the Act” – even for employees who were offered but did not accept the proposed severance.
For employers in California, McLaren Macomb is of course applicable but it may be less important due to the current requirements of California law. This is because SB 331, which became effective on January 1, 2022, already requires express language in severance agreements that creates a significant exception to any proposed confidentiality and/or nondisclosure provisions. Passed in response to the #MeToo movement, SB 331’s purpose was to “prohibit an employer from requiring an employee to sign a nondisparagement agreement or other document to the extent it has the purpose or effect of denying the employee the right to disclose information about those acts.” Notably, SB 331 – through an amendment to Government Code section 12964.5 – contains language that must be included verbatim within any nondisparagement or similar provision. This language reads, “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”
There exists no authority yet as to whether SB 331’s language would be sufficient to satisfy the McLaren Macomb’s requirements. However, a reasonable interpretation indicates “unlawful acts” would include any conduct that allegedly violated any sections of the NLRA. In an abundance of caution, though, employers seeking to include nondisparagement and/or confidentiality provisions in severance agreements may want to expressly mention of the NLRA’s protections on to the verbatim language required by SB 331, including but not limited to Sections 7 and 8.
Scherer Smith & Kenny LLP remains available to guide you through these and other nuances in California’s dynamic and ever-changing employment law arena. For additional information, please contact Denis Kenny at dsk@sfcounsel.com, Ryan Stahl at rws@sfcounsel.com, or John Lough, Jr. at jbl@sfcounsel.com, or Jaclyn Tran at jaclyn@sfcounsel.com.
-Written by Ryan Stahl