DC Circuit Rules Non-Disparagement “Directives” to Executives in Separation Agreements Could Bind Employers

The Foundation hired Dr. Terri Wright as its vice president of Program and Community in February 2018. In October 2019, the Foundation’s CEO, Nicola Goren, made the decision to terminate Wright’s employment. The parties entered into a Severance Agreement which contained the following clause:

Mutual Non-Disparagement. You agree that you have not made, and will not make, any false, disparaging or derogatory statements to any person or entity, including any media outlet, industry group or financial institution, regarding the Foundation or any of the other Releasees, or about the Foundation’s business affairs and/or financial conditions; provided, however, that nothing herein prevents you from making truthful disclosures to any governmental entity or in any litigation or arbitration. 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; provided, however, that nothing herein prevents such individuals from making truthful disclosures to any governmental entity in litigation or arbitration.

According to the allegations in the complaint in the case, in November 2019, roughly a month after Wright’s termination, Goren was at an offsite meeting in her capacity as the chair of the Board of the Washington Regional Association of Grantmakers (WRAG). There, she met with Dr. Madye Henson, who was at the time president and CEO of WRAG. During that meeting, “Goren complained that she was feeling backlash from abruptly terminating Dr. Wright,” and in response, “Henson shared that many leaders in the community [were] questioning her decision and believe[d] that” the decision was “discriminatorily motivated.” “Goren acknowledged that she sensed this was the perception but claimed that she had no option” because Wright was “toxic,” fostered a “negative climate” at the Foundation, and “had to be fired or two-thirds of the staff would leave.” 

After she learned of Goren’s alleged statements, Wright filed suit against the Foundation for race discrimination, defamation, and breach of the Severance Agreement’s non-disparagement provision. After the lower court dismissed her complaint, Wright appealed to the DC Circuit.

On appeal, the parties disputed the meaning of the Severance Agreement’s non-disparagement clause. The crux of Wright’s claim was that implicit in the Foundation’s promise to “direct” certain officers, directors, and employees to not disparage her was a promise that the Foundation itself would also not disparage her, at least through the statements of its CEO and president who signed the agreement. Thus, Wright argued, the Foundation breached the Severance Agreement when Goren disparaged her in her conversation with Dr. Henson. In the defendants’ view, the Foundation’s duty began and ended with its promise to “direct” its employees and that neither the Foundation, nor its directors or any other employee, had a corresponding or continuing duty to not disparage Wright. 

The court found that the Severance Agreement, read as a whole, was ambiguous and reasonably capable of Wright’s interpretation. The court started with the plain language of the contract, which it felt contained three textual clues suggesting some symmetry between the parties’ obligations to one another. First, the relevant clause in the Severance Agreement is titled “Mutual Non-Disparagement.” Second, the contract language connects the parties’ duties with the term “Likewise.” Third, the “provided, however” clause directly contradicts the Foundation’s assertion that its officers, directors, and employees had no duty not to disparage Wright. That provision grants the Foundation’s personnel the limited ability to disparage Wright as part of litigation or arbitration proceedings: “But if the contract’s sole obligation on the Foundation and its personnel was for an anti-disparagement directive to issue — and no one’s negative speech about Wright was contractually curtailed — then this carve out is pointless and serves no purpose.”

The court reasoned that reading the contract as a whole, a reasonable person in the position of the parties could very well understand the terms “Mutual” and “Likewise,” and the “provided, however” clause, to mean that the Foundation had some corresponding duty to not disparage Wright, even if that duty extended only to the actions of certain individuals who exert significant control over, or speak on behalf of, the Foundation such as the Board or the CEO. 

The court also observed that certain allegations related to the parties’ negotiations also suggested that this interpretation was reasonable. Because of Goren’s previous criticism of Wright’s interpersonal skills, which were detailed in the complaint, the non-disparagement clause was “[c]ritically important” to Wright: “With that background, it would make little sense if the mutual non-disparagement clause permitted the Foundation, acting through the very person who signed the contract, who fired Wright assertedly based on criticisms of her professional skills, and who controlled the Foundation to a significant extent, to freely disparage Wright.”

The court acknowledged that the defendant’s and the dissent’s more narrow interpretation of the contractual language was not untenable. However, the court found that this interpretation focused exclusively on the phrase “will direct,” while omitting the words “Mutual,” “Likewise,” and “provided, however,” from its analysis of the contract’s meaning.

Beyond the contractual language, the court reasoned that a simple hypothetical further revealed why it could not conclude, as a matter of law, that the defendants’ interpretation of the non-disparagement clause was the only reasonable one: “Imagine if, after signing the Agreement, a director at the Foundation sent an email to all of its employees as well as its Board directing them not to make false, disparaging, or derogatory statements about Dr. Wright. Then, only minutes later, the Board and the CEO go on to release a public statement disparaging Dr. Wright. Under Defendants’ theory, the Foundation would have upheld its end of the bargain under the express terms of the contract.” The court therefore reversed and remanded the case for further proceedings.

This case illustrates that non-disparagement clauses must be drafted carefully and unambiguously. The court may well have ruled differently if the clause at issue did not contain the works “Mutual,” “Likewise” and “provided, however.”