NLRB & CIRCUIT COURT SMACK DOWN “NON-DISPARAGEMENT CLAUSES”

Although it is rarely done in the federal government, private sector employers often impose “gag orders” on current and resigning employees in order to avoid a public airing of facts about how the company is run. (See American v SBA, 643 F.3d 330 (2011) for a federal employee example.) These are called “non-disparagement clauses” and they often force a resigning employee to choose between receiving some severance pay and exercising his/her rights under various statutes to pursue a public airing of the company’s laundry—dirty and otherwise. They can prevent the employee from even revealing evidence of criminal violations by the employer if he/she wants some severance pay or just an employment recommendation that does not doom his/her chances for another job, much less a reputation. The latest pop example of how these clauses are used as cover-up devices is the Roger Ailes-Fox Network fiasco which was allowed to fester and build because employees were required to agree to these clauses in their employment contracts and severance agreements. There are dozens of other examples where employees were prohibited from revealing evidence of financial wrong-doing, waste, abusive employee treatment, rampant discrimination, violations of law and commonly accepted morals and just paste-poor leadership. But the life of this core “cover-up” tool seems to be coming to an end, thanks most recently to the NLRB and Federal courts.

In a case known as Quicken Loans, Inc. v. NLRB, the DC Circuit Court of Appeals just upheld a Board order invalidating a common non-disparagement clause. The company required employees to agree to the following clause if they wanted a job there or any severance pay:

Non-disparagement. The Company has internal procedures for complaints and disputes to be addressed and resolved. You agree that you will not (nor will you cause or cooperate with others to) publicly criticize, ridicule, disparage or defame the Company or its products, services, policies, directors, officers, shareholders, or employees, with or through any written or oral statement or image (including, but not limited to, any statements made via websites, blogs, postings to the internet, or emails and whether or not they are made anonymously or through the use of a pseudonym).

The Court wrote that the National Labor Relations Act gives employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection[.]” Those rights “necessarily encompass[]” employees’ rights to communicate with one another and with third parties about collective action and organizing a union as well as to “seek to improve terms and conditions of employment or otherwise improve their lot as employees through channels outside the immediate employee-employer relationship. The Act thus protects employees’ rights to discuss [the] organization and the terms and conditions of their employment, to criticize or complain about their employer or their conditions of employment, and to enlist the assistance of others in addressing employment matters. Employers that “interfere with, restrain, or coerce employees in the exercise of the rights guaranteed” by Section 7 commit an unfair labor practice. (Federal employees have virtually all the same rights under the Civil Service Reform Act whether they have a union or not and irrespective of whether they are still employed with the agency.)

The Court then clarified that whether workplace rules run afoul of the Act’s protections turns on an objective inquiry into “‘whether the rules would reasonably tend to chill employees in the exercise’ of their statutory rights.” Unreasonable chilling of lawful employee activities can take two forbidden forms. First, a rule could on its face restrict protected activity by, for example, explicitly barring employees from complaining to third parties about their working conditions. Second, even if facially unobjectionable, a rule is invalid if (i) “‘employees would reasonably construe the language to prohibit Section 7 activity’”; (ii) the rule “‘was promulgated in response to union activity’”; or (iii) “‘the rule has been applied to restrict the exercise of Section 7 rights. That means that the “‘mere maintenance’ of a rule likely to chill section 7 activity, whether explicitly or through reasonable interpretation, can amount to an unfair labor practice ‘even absent evidence of enforcement’” of the rule by the employer.

In the end the Court ruled that, “The Board quite reasonably found that such a sweeping gag order would significantly impede [Quicken Loan’s] mortgage bankers’ exercise of their Section 7 rights because it directly forbids them to express negative opinions about the company, its policies, and its leadership in almost any public forum.” The court also endorsed related NLRB decisions striking down–

  • rules that only allowed employees to complain internally,
  • rules requiring employees to represent the company “in a positive and professional manner” because it would “discourage employees from engaging in protected public protests of unfair labor practices,
  • rules prohibiting employee statements to third parties protesting their terms and conditions of employment,” or
  • rules prohibiting “negative conversations about associates or managers” because employees would reasonably construe it to bar “discussing with their coworkers complaints about their managers that affect [their] working conditions.”

(The last two rules are similar to rules that we know appear in many federal agency handbooks or conduct rules and this new court decision should start federal employee unions analyzing just what rules it should attack as interfering with their members’ right to engage in the full range of collective bargaining activity.)

Quicken Loans tried to defend its rule by arguing that it was valid because it made an exception for employee complaints to federal agencies. The Court disagreed. After all, the National Labor Relations Act grants employees and former employees the right to solve problems through collective bargaining without involving the government.

Although the NLRB decision is the latest one sounding a death knell for “non-disparagement clauses,” the Board is not the only federal agency attacking these rules. The EEOC is actively pursuing a similar ruling based on employees’ right to fight illegal discrimination in any forum they wish, not just through the formal complaint process. The Securities and Exchange Commission has announced it will challenge non-disparagement clauses as has the Federal Trade Commission. Even our incredibly unproductive Senate has managed to pass a bill that would prohibit private vendors from gaging consumers. The US Dept. of Labor also appears to be gearing up for the same fight as relevant to the laws it enforces against contractors, unions, and other employers. It appears that the free speech concept is breaking out all over. That is not good news for organizational leaders who have wastefully spent a company or unions funds to “cover-up something they did not want certain people to hear about. Although there are always exceptions to any rule, a good one in this area to follow is that the larger the severance package the more damning the facts are that are being covered-up.

If confronted with a similar clause in a proposal resignation settlement or even a “last chance” agreement, union reps should consult counsel for what to do next.

About AdminUN

FEDSMILL staff has over 40 years of federal sector labor relations experience on the union as well as management side of the table and even some time as a neutral.

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