Employers – Don’t Get Too Cute In Interpreting Those Non-Disparagement Clauses

This was the lesson for employers from the U.S. Court of Appeals for the D.C. Circuit, which found the employer to have violated a mutual non-disparagement clause in an employee’s severance agreement in Wright v. Eugene & Agnes E. Meyer Foundation.

The non-disparagement clause in question contained rather typical language that prohibited the Foundation employee from making “false, disparaging or derogatory statements to any person or entity.” It also provided that, “Likewise, the Foundation will direct those officers, directors, and employees with direct knowledge of this revised letter agreement not to make any false, disparaging or derogatory statements to any person or entity regarding you.” There was also an appropriate carve-out for “truthful disclosures to any governmental entity or in any litigation or arbitration.”

Following execution of the agreement, the Foundation’s CEO made negative statements about the employee to another non-profit leader. The employee sued for breach of the agreement, among other things. The Foundation argued, and the federal trial court agreed, that the disparagement clause obligated the Foundation only to direct its employees not to disparage the employee, but that the Foundation and its employees were actually free to disparage her. The trial court dismissed the claim.

On appeal, although the D.C. Circuit acknowledged that the Foundation’s interpretation was “tenable,” it held that, under D.C. law, the issue turned on what a reasonable person in the parties’ position would have thought the words meant. The D.C. Circuit found the following language to be compelling: (1) the title of the clause was “Mutual Non-Disparagement,” (2) the use of the word “likewise” as to the employer suggests that the employee’s non-disparagement obligation is equally applicable to the employer, and (3) unless the Foundation was, in fact, prohibited from disparaging the employee, the carve-out for testimony to agencies or in litigation would have no real effect (contrary to the principle that all parts of a contract should be given effect). The D.C. Circuit also found it would make “little sense” if the clause permitted the Foundation, through the very person who fired the employee and signed the agreement to freely disparage the employee. Accordingly, the D.C. Circuit found that the trial court should not have dismissed the claim, and that the employee should have the opportunity to prove that her interpretation is the best reading of the contract.

Frankly, the employer’s argument in this case – although perhaps technically “tenable” – feels rather disingenuous. And certainly it would seem to be contrary to what the employee reasonably believes. It does not place the employer in a good light and puts their good faith in question.