Labor Board Could Loosen Curbs on Nondisclosure Agreements

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By Hassan A. Kanu

The federal labor board could soon make it easier for businesses to require workers to sign confidentiality agreements in exchange for severance pay, a decision that would likely get lots of scrutiny in light of the national attention surrounding sexual harassment on the job.

The National Labor Relations Board’s new Republican members, Marvin Kaplan and William Emanuel, said last week that they’d like to reconsider the legality of confidential severance agreements “to the extent” such agreements are “not already permitted under Board precedent.”

The board has previously barred broad contractual obligations that members said infringe on workers’ right to engage in “protected concerted activities"—acting collectively to protect themselves and colleagues in the workplace—as violations of the National Labor Relations Act. That includes far-reaching “non-disclosure” and “non-disparagement” agreements, or NDAs.

Kaplan and Emanuel’s comments come as advocates continue to raise alarms about the use of nondisclosure agreements as a strategy to silence victims of workplace sexual harassment.

The NLRB’s new general counsel, Peter Robb (R), already flagged for review another sexual harassment complaint policy that favors workers. That prompted Sens. Elizabeth Warren (D-Mass.) and Patty Murray (D-Wash.) to question his views on how frequently workplace sexual harassment occurs and how federal labor law should apply to those cases.

The board could find itself wading into the testy waters of the #MeToo national awareness campaign if it decides to review and reverse one or both of those worker-friendly policies.

Current Regime Prioritizes ‘Mutual Aid’

Several agencies, including the Equal Employment Opportunity Commission, generally take the view that severance and other contract provisions that interfere with their right to investigate illegal workplace behavior are unlawful, Kerry Notestine, a shareholder representing employers at Littler Mendelson P.C., told Bloomberg Law.

The board has relied on workers NLRA “right to self-organization” and to act together for “mutual aid or protection” in finding that certain confidentiality and NDA provisions in both employment and severance agreements unlawful. There isn’t an overall prohibition against NDAs or confidentiality requirements.

“The board is probably on the vanguard on this whole issue and has probably gone a little further than a lot of other agencies,” Notestine said, adding that the board went further than many “companies and defense lawyers thought” it would.

“It’s not like it’s that new; what is new is a greater interest in enforcing and expanding the right” of the employee to engage in collective action, he said.

“I think the question is what does the NDA prohibit?” Joseph Sellers, a partner in Cohen Milstein’s Washington, D.C., employment practice, told Bloomberg Law.

“If it prohibits you from talking about the terms of the settlement, that might be compatible with the NLRA,” he said. “Some of them, though, prohibit you from talking about the underlying dispute and circumstances, and that’s more likely to run afoul of the NLRA’s protections.”

Countervailing Interests

“It’s an interesting issue because confidentiality is a sword that kinda cuts both ways,” Jonathan Segal, a partner with Duane Morris who represents employers, told Bloomberg Law. “It’s important for an employee to feel comfortable that something they’ve suffered won’t become public against their wishes. And from an employer’s perspective, there’s times where things are gray and they can’t discover what happened but they want to make a business decision to resolve the matter amicably rather than fighting.”

Much of the recent public conversation around nondisclosure agreements has been focused on employees who may have preferred publicity over privacy, a preference many women’s rights advocates view as advantageous. The NDAs allow accused harassers to avoid public attention and to sometimes continue victimizing others, they say.

But there are some legitimate considerations favoring fewer restrictions against confidentiality clauses, Segal said.

Employers that handle a situation lawfully and properly—especially where an investigation produces a murky picture—could be discouraged from making a severance payment if they perceive that they face “reputational risk” whether or not they settle a claim, he said. The consideration would apply to a range of possible labor violations, including unlawful surveillance and prohibitions on what employees can talk about at work.

Sellers agreed that some people who have disputes with employers, particularly in cases of sexual harassment—where the employee could risk personal embarassment—might prefer a confidential settlement.

But “the opportunity to talk about what happened may have broader social and public consequences past what happened to that one person, and forbidding them from talking about it may make such an agreement something that offends public policy,” Sellers said.

“There are good and valid reasons why NDAs can and should be used when they’re freely entered into by both parties,” he said. “Some employees may elect to say silent, but that’s their choice. Compelling them to do so—the routine use of non-disclosure agreements to purchase silence—is what’s troubling.”

What Might Change Look Like?

Segal said he believes the board will balance employees’ rights to collective action under the NLRA against employers’ interest in confidentiality to reach a new policy—if they do take on the issue.

The board would likely rule that “the employer’s interest outweighs the employee’s right, provided that there is a carve out that would allow the former employee to contact, provide information to, and file a charge with any government agency, commission or entity, such as the NLRB or EEOC,” Segal said.

To contact the reporter on this story: Hassan A. Kanu in Washington at hkanu@bloomberglaw.com

To contact the editor responsible for this story: Chris Opfer at copfer@bloomberglaw.com

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