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Employers Beware of Continuing to Rely on Your Non-Disparagement Agreement and Non-Compete Provisions

by | Mar 6, 2023 | Employment Law | 0 comments

Recent actions by the National Labor Relations Board (NLRB) and the Federal Trade Commission (FTC) signal a pronounced shift in the balance between employer and employee rights, concerning non-disparagement agreements and the potential for an FTC non-compete ban.

Severance agreements may not include broad non-disparagement agreement provisions or restrict disclosure of severance terms.

2023 Non-Disparagement Agreement Decision

First, on February 21, 2023, the NLRB ruled that an employer acted unlawfully by proffering a severance agreement with language prohibiting employees from disparaging their former employer. In addition, the NLRB ruled it was unlawful to prevent employees from disclosing the terms of their severance packages.

The decision states “the employer’s offer is itself an attempt to deter employees from exercising their statutory rights [under the National Labor Relations Act (NLRA)], at a time when employees may feel they must give up their rights in order to get the benefits provided in the agreement.”

This decision reversed two Trump-era decisions that had upheld non-disparagement agreement provisions (in the absence of other unlawful activity by the employer). The NLRB stated that its prior holdings were wrong and did not 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.”

Most all employers need to be aware of these new restrictions. Although many employers are not aware of it, the National Labor Relations Act applies to almost all private sector employers and grants employees the right to engage in protected, concerted activities for the purpose of “mutual aid or protection”, address or improve working conditions, form or join unions, or to refrain from engaging in such activities.

Under Supreme Court precedent, certain religious ministry employers may not be subject to the NLRA. And in many cases, managers/supervisors are not protected by the NLRA.

Ballpoint pen on top of non-disparagement agreement. Non-compete ban

The FTC Non-Compete Ban Proposal

Second, employers who have relied on non-compete provisions and language in employment agreements or policies need to be aware that the FTC is proposing to prohibit the use of non-compete agreements. On January 5, 2023, the FTC unveiled its proposal to ban non-compete agreements and launched a public comment period that will run until March. Its proposal requires the rescission of existing agreements and applies not only to employees but to independent contractors and those in unpaid positions. While the FTC rule is not yet final and will likely be challenged, employers in states that have previously allowed such agreements should be aware that time may be running out on the use of non-competes.

Need to Develop a Severance Agreement that Is NLRA Compliant?

A non-compete lawyer at Gammon and Grange PC is available to work with employers to take account of these recent developments and determine whether they are an employer subject to the NLRA. For those that are bound by the NLRA, we can assist them in developing severance agreements and employee handbooks that comply with the NLRA and other applicable laws.

Likewise, we can assist employers in structuring agreements and policies that include reasonable confidentiality and non-disclosure provisions to protect an employer’s proprietary materials, while avoiding reliance on non-compete provisions.