By Darby Peters and Abigayle Garrett
It is common for employers to have a contract such as a non-compete or severance agreement with an employee. On February 21, 2023, the National Labor Relations Board (“NLRB”) issued a decision that restricts what an employer can put in severance agreements and other employer-employee contracts. This NLRB decision applies to both unionized and non-unionized workers, protecting employees’ rights to make public statements, communicate about the workplace, self-organize, and form unions if they wish to do so.
Although this decision can impact any contract an employer offers an employee, some of the contracts that will be under the most scrutiny include severance agreements, offer letters, non-compete agreements, non-solicitation agreements, and confidentiality agreements. Generally, the agreements require the employee to waive certain rights in exchange for employment or receiving a severance package. Employers use such agreements as useful tools to protect their companies. Employers often ask employees to agree to a non-disclosure or non-compete agreement when the employee could be privy to information that could harm the company if the information was shared with competitors, such as bidding techniques. Similarly, employers often offer severance agreements to terminated employees that contain broad liability releases, which attempt to waive the employee’s rights to sue the company in the future.
However, the February 21, 2023 decision by the NLRB limited the scope of rights an employer-employee contract can waive. Now, if an employer is not careful and the agreement language is too broad, the agreement will be a violation of the decision and will be void. Overly broad language that infringes on an employee’s rights is strictly prohibited, such as limiting an employee’s rights to make public statements or communicate with other current or former employees. Examples of such overly broad language may be a non-disparagement clause that prohibits employees from making statements that could disparage or harm the image of the company, or a confidentiality clause that prohibits employees from disclosing the terms of the agreement to anyone besides a professional advisor or spouse. It is important to note that merely offering a contract of this nature is now a violation of the Act, regardless of whether the employee signs it.
This NLRB decision is effective immediately and applies retroactively to previously executed agreements. The NLRB recommends employers with contracts that may be unlawful to contact the affected employees and notify them that provisions that are overly broad are null and void. Doing so could help the company later on, if it finds itself litigating over such agreements because a judge would be more likely to rule favorably towards a company that attempted to comply with the new Rule. Before taking any action, each employer should evaluate their own company’s circumstances and consult an attorney if necessary to decide what steps should be taken.
While this decision changes what language can be included in employer-employee contracts, it does not totally prohibit employers from offering them. Severance agreements, non-disclosure clauses, and other contracts can still be legal and binding if carefully crafted. A lawful agreement must be narrowly tailored to the specific issues it wishes to address, rather than broadly banning an employee’s rights to communicate with the public or each other. The agreement should also have a temporal limitation where it binds the employee for a certain period of time based on legitimate business justifications, but does not bind the employee indefinitely. Finally, a lawful agreement should avoid overly broad language such as prohibiting “all disputes,” making “any statement that may harm the company,” or prohibiting disclosure of the terms of the agreement.
The attorneys at Sheats & Bailey, PLLC are experienced with drafting and revising employer-employee agreements such as non-compete agreements, offer letters, confidentiality agreements, non-solicitation agreements, and severance agreements. For more information or assistance with navigating the NLRB’s most recent decision regarding employer-employee agreements, contact Sheats & Bailey, PLLC, at (315) 676-7314.
The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information, content, and materials are for general informational purposes only. Readers of this article should contact their attorney to obtain advice with respect to any particular legal matter. No reader of this article should act or refrain from acting on the basis of information in this article without first seeking legal advice from counsel in the relevant jurisdiction.