March 15, 2023
For years, companies have been able to demand that laid-off employees agree to stay quiet about their employment in exchange for getting their severance. They are now free to say what they want, reports Inc. magazine.
On February 21, the National Labor Relations Board (NLRB) overturned a 2020 ruling that allowed employers to make confidentiality and non-disparagement clauses a binding part of severance agreements. Companies no longer can ask departing employees to stay quiet about the terms of their departure, and the terms of their employment, with third parties, in order to get severance.
In the 3-1 decision, the board concluded that asking for such silence deters employees from exercising their statutory rights under the National Labor Relations Act (NLRA). The NLRB’s decision applies to substantially all private-sector employers except for airlines, railroads, and other companies covered by the Railway Labor Act, notes Robert Nagle, co-chair of the Labor Management Relations Practice at Philadelphia-based law firm Fox Rothschild.
The ruling doesn’t apply to those with Section 7 rights (which, under the NLRA, allows employees the right to collectively band together to improve workplace conditions) such as independent contractors, managers, most supervisors, and public service employees.
It does not appear that the board’s decision will retroactively invalidate severance agreements entered into before its recent decision. However, it is possible that the board could deem any current attempt to enforce such provisions as constituting a violation of the NLRA.
There may be some workarounds for employers, notes Jessica Roe, labor and employment attorney at Minneapolis-based Roe Law Group. For example, an employer can include a disclaimer in its agreements regarding Section 7 rights such as “Nothing in this agreement is meant in any way to inhibit or restrict your Section 7 rights under the NLRA.” In other words, such agreements may still be possible if employees know and understand their rights prior to signing.
But a disclaimer, alone, she notes, is not likely to be enough. Employers will need to ensure that their provisions on non-disparagement and confidentiality related to the agreement are narrow and us the language directed by the NLRB in this recent decision. She recommends business owners who’ve used non-disparagement agreements in the past to work with counsel to carefully craft appropriate language.
“There should be a concerted effort to take a look at these agreements and make adjustments, at the least,” says Roe. Especially because it’s possible that the board might still view such language as impermissible.
Multiple sources also note that it’s very likely that the February 21 ruling will be appealed, and it is uncertain whether the decision can ultimately survive legal scrutiny.
It is also likely that this rule on severance agreements may shift back to prior board precedent, once again, if and when there is a Republican administration in Washington in 2024, notes Michael Schmidt, vice chair of the labor and employment department at law firm Cozen O’Connor.
In addition, it does not appear that the board’s decision will retroactively invalidate severance agreements entered into before the February 21 decision, says Schmidt.
However, it is possible that the board could deem any post-February 21 attempt to enforce such provisions as constituting a violation of the NLRA.
In the meantime, if the board determines that a particular severance agreement or larger policy with respect to a severance agreement violates the NLRA, the employer can be cited for an “unfair labor practice,” which subjects the company to certain monetary and injunctive remedies, notes Schmidt. The easiest way to avoid such citations all together, he adds, is to ditch the clauses.
Research contact: @Inc