Severance agreement rules have changed

When an employee leaves a business, the company may request that the departing employee sign a severance agreement that includes, among other obligations, an agreement not to disparage the company. In turn, the employee may request that the company not disparage them, either. This is called a “non-disparagement” clause, and may be one form of what’s called “consideration” for a severance payment.

Consideration means that, in exchange for receiving severance, a departing employee agrees not to talk smack about the company. The employee also may be required to keep the terms of the severance agreement confidential. Another form of consideration for severance is the employee’s agreement not to sue the company.

Employees often ask that the non-disparagement clause be made mutual – that is, that it apply to the employee, as well. Larger companies may restrict the non-disparagement agreement with respect to the employee to only certain other employees, as it cannot control what everyone says about the departing employee. 

NLRB bans confidentiality and non-disparagement clauses

A recent decision by the National Labor Relations Board (“NLRB”) has changed all this with respect to both unionized and non-unionized non-supervisory employees. The Board’s decision states that employers may not offer former employees severance agreements that prohibit them from disclosing the terms of the agreement and from making statements that disparage their employer. The NLRB prohibited such statements because it believes they could interfere with former employees’ Section 7 right to speak out about the terms and conditions of employment with their former co-workers, their union, the NLRB, the media, or anyone else.

If you’re an employer…

This decision means that, regardless of whether you offer departing employees severance, you may not prohibit non-supervisory employees from disclosing the amount of severance, if any, or talking smack about your company. Note that you still may prohibit false, malicious and reckless claims by former employees. This ban could hurt your company’s ability to negotiate other severance packages and also hurt its reputation. 

If you’re an employee…

You now may collect severance in exchange for agreeing not to sue your former employer and still disclose the amount of the severance and talk smack about them. But you may not require that your former employer – or even certain people in the company – not talk smack about you. That could hurt your reputation just when you need to protect it most.

What should you do about this?

In light of this ban on confidentiality and non-disparagement clauses for non-supervisory employees, employers should remove the confidentiality clause and change the language in the non-disparagement clause to apply only to false, malicious or reckless claims. Employers also should state that the limited non-disparagement clause is not meant to interfere with the former employee’s Section 7 rights.

If you’re a departing non-supervisory employee, you should ask for a positive written reference from your employer as part of your severance package. 

Both employers and employees are wise to seek an experienced employment attorney in their jurisdiction to help them implement the changes now required by this ruling and to negotiate any severance agreement. Whether you’re an employer or an employee, we can help get you through this.

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