I just finished reviewing a contract, a combination non-compete, non-solicitation confidentiality, non-disclosure agreement for a client. This kind of agreement is typical in the software or technology industries. Like most of these contracts, this contract was vastly overwritten, almost obscenely so. While my advice to the client who had already signed the agreement, to do what you think is right for you and your situation, but there are a couple of provisions that showed up in the document that are blatantly illegal. Those two provisions dealt with a non-disparagement clause and an arbitration clause.
The non-disparagement clause was typical of ones that I’ve seen. It says that the employee shall not make any statements that are disparaging of the owners, managers, officers, directors, agents, employees, attorneys, and other groups of people, in any form including a blog, a website, written or spoken. On the surface, these non-disparagement clauses seem to be legitimate to protect the company’s interests. The arbitration clause is also problematic, and if you haven’t read my rant about arbitration, you should check it out on my website. The arbitration clause says that if there is a dispute between the employer and employee, then the parties must go to arbitration. Pouring salt into that wound, the employee can only sue in arbitration for himself and by himself. He can’t do it as part of a class action or a group of other employees. From an employer’s standpoint, the non-disparagement and arbitration clause sound pretty good. From an employee’s standpoint, the clauses are not so good. Both the non-disparagement and arbitration clauses as written violate the law and are therefore unenforceable.
Section 7 of the Labor Relations Act:
Section7 protects the rights of the employees of any company, not just unionized companies, but any company in the United States. It protects the employees’ rights to discuss the terms and conditions of their employment. The employees can do that individually or they can do that in concert with others. Contrary to myth, an employee does not have to work collectively only through a union.
The theory behind the National Labor Relations Act and Section 7 is that an employee is already at a disadvantage generally with a business. The employees may not be able to dictate or negotiate the terms of an employment relationship adequately, so employees have these additional rights which allow them to discuss the conditions of their employment, whether that is publicly or directly with the employer. Sometimes employers don’t listen if you go to them privately and directly. Occasionally, public action or public outcry is the only way that an employee can affect positive change in their employment conditions.
When it comes to disparagement, an employee cannot lie and defame someone in ownership or management. If the employee is telling the truth or expressing an opinion that might put ownership or management in a negative light, it is protected activity. If, for example, the employer is not giving employees an adequate lunch break, the employee has every right to proclaim that failure publicly. The complaint about lunch breaks will no doubt be a disparaging comment because it puts management in a negative light, but it is still protected because it is a discussion of the terms and conditions of employment.
If an employee is prohibited from disparaging their employer by contract, it creates a situation where the employer can hide any kind of abuses no matter what. If an employee complains publicly, then merely making that complaint would be a breach of that contract. Section 7 permits workers to discuss the terms and conditions of their employment, employers cannot bypass the law by use of a contract that prohibits discussion of the terms and conditions of employment. So phrases that you often see in employee handbooks or in contracts or in non-disclosure agreements that prohibit non-disparagement, are generally banned by the National Labor Relations Act.
Similarly, if an employer tells an employee in a contract that they cannot go to arbitration as a group, or file a lawsuit as a group, then you are also violating Section Seven. The employees have the right to act as a group to address the conditions of their employment. In telling somebody you can only sue us individually does two things. First, it explicitly violates Section 7 of the NLRA. Second, arbitration or lawsuits put an enormous financial burden upon a single employee (arbitration and lawsuits are expensive). A group of employees could pull their resources and pursue a collective action against their employer, but usually, a single employee usually cannot. There are some provisions in the law that allow for the recovery of attorney’s fees, but for the most part, an employee would have to retain a lawyer with some amount of money, which is not always easy for an individual employee.
So how can employers get around these statutory prohibitions? First, stop trying to get around them because you can’t and morally you shouldn’t. Second, create an employment atmosphere that keeps your employees happy. Provide a mechanism for them to lodge a grievance, to complain about what’s going on, to talk about why did X person get paid more than Y person. Why are they both getting paid more than me? If you allow that dialogue, you’re going to demonstrate to your employees that you value their input, that you have an open door policy, and you’re willing to talk to them. Otherwise, employees are going to keep that inside. They’re going to get angry; they’re going to get sullen. And, quite frankly, angry and sullen workers aren’t very productive workers. If you have a problem with an employee, be honest. Try to fix the matter and if you can’t, have enough backbone to fire them honestly.
Have you ever seen non-disparagement clauses in your contracts? Have you ever had problems with employees complaining about the conditions of their work?