Practical Considerations Regarding the Use of Non-Disparagement Provisions in Light of Increased Scrutiny

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For years, many employers routinely drafted severance agreements to include both confidentiality and non-disparagement obligations. Over the course of 2023, several federal agencies, including the NLRB and the EEOC, issued opinions or guidance indicating that in most cases, those agencies generally viewed such provisions as overly broad, as limiting, discouraging, or prohibiting individual workers from exercising their rights under federal laws, and as possibly impeding those agencies’ investigative and enforcement efforts. Notably, the EEOC mentioned such provisions in its Strategic Enforcement Plan for Fiscal Years 2023-2027(SEP). In the SEP, the EEOC noted that preserving access to the legal system is one of its six subject matter priorities, and specifically indicated that over the coming years it intends to make such provisions one of its focuses when determining charge prioritization, selection of litigation and amicus briefs, federal sector enforcement, and all other activities across the agency. Likewise, both the EEOC and NLRB have emphasized their commitment to inter-agency communication with respect to their scrutiny of such provisions, indicating that where an enforcement action by one of those agencies results in the disclosure of arguably overly broad confidentiality or non-disparagement provisions in a proposed or executed severance agreement, that agency may provide the agreement to other agencies for review and for additional potential enforcement actions.

In light of this increased scrutiny from regulators, early 2024 is a good time for employers to reconsider the practical utility of such provisions, particularly non-disparagement provisions. Specifically, employers often value non-disparagement provisions in severance agreements for their perceived deterrent effect, but in many cases, employers have not given much thought to the question of whether, and under what circumstances, they actually would seek to enforce such provisions by filing a lawsuit seeking injunctive relief and whether such a lawsuit would achieve the desired effect.

Particularly with respect to non-managerial employees receiving one-time lump-sum severance payments, employers should consider how they would want to address any future breaches or disparaging statements by the former employee. Available legal options for seeking to enforce a non-disparagement agreement primarily include sending a cease-and-desist letter, filing a lawsuit for injunctive relief to stop (or request the removal) of any disparaging statements or posts, and pursuing legal claims for common law defamation. Ultimately, the effectiveness of each of those options, including the cease-and-desist letter, rely on the credible threat of obtaining relief from a court, which often can be difficult to predict when dealing with disparaging statements. The likelihood of success in litigating non-disparagement disputes arises from the factual questions inherently presented by such litigation, including whether any statement was in fact disparaging, whether the statement has resulted in any harm or could result in any harm, whether any actual harm or damages have occurred and the amount of damages attributable to such harm, and whether any potential harm that could arise from the allegedly disparaging statements or posts could result in imminent or irreparable harm (as is required to obtain injunctive relief). When presented with such factual questions, judges may be hesitant to order injunctive relief. Also, litigation can be costly and time consuming and collecting on any potential judgment for damages or for contractual fee shifting from an individual former employee may be difficult or unlikely.

In addition to the cost and difficulty of obtaining effective and efficient relief from the courts in the event of a breach of a non-disparagement provision, pursuing relief from the legal system often results in less than ideal practical outcomes. For example, cease and desist letters and litigation may result in (1) the former employee learning that the statements or posts are causing the employer concern and resulting in an expenditure of the employer’s attention and resources which could embolden the employee and add fuel to the fire, and (2) pursing litigation may require further publicizing and drawing more attention to the allegedly disparaging statements by virtue of attempting to address them through the public forum of the judicial system.

Other options for responding to disparaging statements that do not rely on the existence of contractual non-disparagement provisions and that do not rely on initiating legal proceedings may have more practical utility and less expense. When a former employee privately disparages an employer to customers, vendors, or contractual partners, the most effective approach often is for the employer to rebut those statements with those entities directly and privately, including by informing them that the employee no longer works with the company and encouraging them to consider the source and circumstances of anything that is being said (but without disparaging the employee). When a former employee publicly disparages an employer on social media or websites, employers may be able to seek removal of the posts based on the terms of service of those platforms or may be best served by ignoring the comment with the understanding that its time in the spotlight, if any, will be limited at best. At the end of the day, the most efficient and best practical response to any disparaging statements by non-managerial former employees often is to provide truthful and factual rebuttals directly to the customers, vendors, and contractual partners whose impressions and opinions matter from an operational standpoint.

These practical considerations do not mean that non-disparagement provisions have no utility, only that their use case may benefit from a reevaluation. For example, non-disparagement provisions may have more value to employers and be subject to less scrutiny from regulators when used with managerial and executive employees as opposed to non-managerial employees. This is particularly true where the severance agreement with the managerial or executive employee calls for payment of severance over time and allows for the discontinuation of payments upon any future breach of the agreement. If drafted correctly and with the appropriate savings provisions to state explicitly that the former manager or executive may freely communicate with regulators, the incentive for a former employee to abide by the non-disparagement provision and the available practical relief of being able to stop future payments may combine to increase the provision’s practical utility.

Given the increased scrutiny of non-disparagement provisions from regulators such as the EEOC and NLRB and considering the limited practical utility of such provisions and practical challenges of obtaining useful relief from the courts in the event of a breach of such provisions, employers may want to reconsider their inclusion in severance agreements with non-managerial and non-executive employees going forward.

If you would like to discuss these considerations or any particular factual situations, the attorneys of Maynard Nexsen’s Employment and Labor group are eager to help.