New Ruling: Severance Agreements Can No longer Keep Employees silent
A new ruling by the National Labor Relations Board prohibits broad confidentiality and non-disparagement clauses in severance agreements.
When a company terminates an employee, it may offer the outgoing employee a severance agreement with severance pay, in exchange for closely following a number of restrictions.
Keeping quiet was often one of them.
Previously, private-sector employers could include broadly written confidentiality and non-disparagement clauses that require former employees not to disclose certain information, including terms of their severance agreement and prohibit former employees from making disparaging statements against their former employer and airing the company’s dirty laundry to others.
But, according to a new ruling by the National Labor Relations Board (NLRB) issued in late February, these overly broad clauses infringe on employees’ rights protected by the National Labor Relations Act – and are no longer permissible. The ruling reverses NLRB standards previously approved under President Trump’s administration, allowing employers to ask employees to keep quiet in exchange for severance pay.
What does this new ruling mean for employers and employees alike? What organizations are covered by this new law? ProService Hawaii put these and other questions in front of its HR Consultants. Here are their answers.
What is a severance agreement?
A severance agreement is a type contract between an employer and a former employee where in general, the employer provides a severance payment in exchange for the former employee’s agreement not to file a claim against the employer.
What are non-disparagement and confidentiality clauses?
A non-disparagement clause generally prevents employees from disclosing certain confidential business information or saying anything negative about their former employer. Confidentiality clauses generally prohibit employees from sharing details of the severance agreement. While there may be times when a company chooses to use a properly written confidentiality or non-disparagement clause to protect trade secrets, customer information, or financial data, the NLRB’s ruling specifically prohibits broadly written clauses that waive an employee’s rights to engage in protected activity, such as discussing employment matters with their union or communicating terms and conditions of employment with other employees.
Who is covered by this new ruling?
The NLRB’s ruling applies to most private-sector employers. However, it does not apply to agreements with most private-sector leaders such as managers or supervisors.
The ruling also excludes the following:
- Agricultural laborers
- Workers in domestic service of any family or person at their home
- Any individual employed by their parent or spouse
- Independent contractors
- Workers whose employer is subject to the Railway Labor Act
What does this mean for employees?
The NLRB’s recent ruling gives employees more freedom to talk about the circumstances of their departure and experience with their former employer. The ruling does not, however, get rid of severance agreements entirely. Employees may still sign a properly drafted severance agreement upon separation of employment.
What does this mean for employers?
Private-sector companies should think carefully before including confidentiality and non-disparagement clauses in any severance agreement. Should an employer want such clauses, we highly recommend consulting an attorney to draft a proper severance agreement that does not infringe on an employee’s protected rights and complies with the NLRB’s recent ruling.
What is the consequence of non-compliance?
Severance agreements, including prohibited clauses, may not be enforceable, and in certain situations, employers may be subject to pay monetary damages.
This material has been prepared for informational purposes only. It is not intended to provide legal advice. If you have any legal questions regarding this content, please consult with an attorney.
