Non-Disparagement Clauses in Severance Deals

Non-disparagement clauses have long been a staple in severance agreements, aimed at preventing former employees from making damaging public statements about their ex-employers. However, recent regulatory shifts, particularly from the National Labor Relations Board (NLRB), have cast doubt on their broad application. These provisions seek to safeguard a company’s reputation in exchange for severance pay, but they must now navigate strict federal and state limitations to avoid invalidation.

Understanding Non-Disparagement Provisions

A

non-disparagement clause

typically requires the departing employee to refrain from criticizing the employer, its leadership, or affiliates in public forums, media, or to third parties. Employers include these to mitigate risks from negative reviews on platforms like Glassdoor or social media, which can harm hiring and business prospects. In severance contexts, they often pair with releases of claims, where the employee waives rights to sue in return for financial compensation.

Historically, such clauses were enforceable if mutual and reasonably scoped. But the landscape changed with the NLRB’s 2023 McLaren Macomb decision, which deemed broad non-disparagement and confidentiality terms unlawful under Section 7 of the National Labor Relations Act (NLRA). This act protects employees’ rights to discuss workplace conditions, even non-union workers, making overly restrictive clauses a violation of federal labor law.

The Impact of NLRB’s McLaren Macomb Ruling

In McLaren Macomb, the NLRB ruled that offering severance agreements with broad non-disparagement provisions interferes with employees’ protected concerted activities. The clause at issue barred statements harming the employer’s image, without limits on timing, scope, or protected speech. The Board held that merely proposing such terms constitutes an unfair labor practice under Section 8(a)(1) of the NLRA, regardless of whether the employee signs.

Key takeaways from the ruling:

• Broad prohibitions on ‘disparagement’ chill Section 7 rights, including public criticism of wages, hours, or working conditions.
• No need for proof of actual interference; the offer alone is sufficient for liability.
• Applies to all employers covered by the NLRA, not just unionized ones.

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The decision overturned prior precedents allowing such clauses, signaling heightened scrutiny. NLRB General Counsel Jennifer Abruzzo’s memorandum reinforced this, noting that even non-signing employees or remaining staff could be coerced into silence.

State-Specific Restrictions on These Clauses

Beyond federal law, states impose additional hurdles. California Civil Rights Department guidance under Government Code section 12964.5 prohibits non-disparagement clauses that prevent disclosure of discrimination, harassment, or retaliation. Such provisions are unlawful unless they include carve-outs affirming the employee’s right to speak on these topics.

Other states like New York and Illinois have similar protections, often tied to whistleblower statutes. For instance, California’s Code of Civil Procedure section 1002.5 voids clauses restricting future employment opportunities post-claim assertion. Employers operating multi-state must tailor agreements accordingly.

Comparison of Key State and Federal Rules on Non-Disparagement Clauses

Jurisdiction	Key Restriction	Exceptions Allowed
Federal (NLRA)	Broad clauses chilling Section 7 rights unlawful	Narrowly tailored to defamation standards
California (Gov. Code §12964.5)	Cannot block discussion of harassment/discrimination	Carve-outs for protected disclosures
General State Trends	Limits on future employment bars	Mutual clauses with justification

Drafting Compliant Non-Disparagement Clauses

To survive scrutiny, clauses must be narrowly tailored. Legal experts recommend:

• Define terms clearly: Limit to statements proven maliciously false (actual malice standard).
• Add time limits: E.g., during severance payout period only.
• Include savings clauses: Explicitly preserve NLRA Section 7 rights, NLRB filings, and government communications.
• Make mutual: Both parties agree not to disparage, enhancing enforceability.

Narrow confidentiality may protect trade secrets or proprietary data, but not severance terms or workplace grievances. Severability provisions can save the agreement if one clause fails, though courts may scrutinize the whole.

For executives, tying payments to compliance (e.g., stopping installments on breach) adds teeth, provided savings language protects regulatory speech.

Risks of Non-Compliant Agreements for Employers

Offering unlawful clauses exposes employers to NLRB charges, backpay orders, and agreement rescission. In McLaren, the Board didn’t invalidate the entire deal but left that open for future cases. Employees could challenge releases, retaining sue rights.

Reputational damage from NLRB findings or public backlash is another concern. Multi-employee layoffs amplify risks, as one invalid offer taints others.

Employee Perspectives: What to Watch For

Terminated workers should review agreements carefully. Broad non-disparagement may waive NLRA rights unknowingly. Consult counsel to negotiate carve-outs or reject problematic terms without forfeiting severance. Steps include:

1. Identify gag clauses limiting speech on wages or conditions.
2. Check for overbroad confidentiality hiding discrimination disclosures.
3. Ensure no future employment bars.
4. Verify consideration matches value (e.g., weeks of pay per service year).

If signed under duress, clauses may be voidable.

Strategic Alternatives to Traditional Clauses

Employers rethinking non-disparagement might opt for:

• Positive reference policies: Neutral or standardized references reduce litigation.
• Mutual release language: Focus on claim waivers without speech curbs.
• Training programs: Proactive culture improvements lessen disparagement incentives.

Legal audits of templates are essential post-McLaren.

Frequently Asked Questions (FAQs)

Can employers still use non-disparagement clauses after the NLRB ruling?

Yes, if narrowly tailored to exclude protected NLRA activities and limited to defamatory statements.

Does the NLRB decision apply to supervisors or executives?

Primarily non-supervisory employees, but executives may face state laws; tailor accordingly.

What if an employee breaches a valid clause?

Seek injunctive relief or withhold future payments, but prove breach first.

Are confidentiality clauses always unlawful?

No, if protecting legitimate proprietary info, not Section 7 rights.

How to add a savings clause?

State: ‘Nothing herein restricts rights under NLRA Section 7 or to communicate with government agencies.’

Future Outlook and Recommendations

With NLRB enforcement ramping up, expect more challenges. Employers should engage labor counsel for revisions, pilot test agreements, and monitor cases. Employees gain leverage to negotiate better terms. Balancing reputation protection with legal compliance is now paramount in severance strategy.

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