Severance agreement change, how it affects employees and employers

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Severance Parting with an employee, whether by mutual consent or not, is never easy.

Regardless of how the decision was reached, employers usually offer severance pay to terminated employees.

It is a critical practice that softens the blow of an involuntary termination.

Furthermore, it is a strategy used to prevent future lawsuits wherein the employee signs a release for severance.

However, the National Labor Relations Board recently came up with a decision that prevents employers from requiring released workers from signing agreements.

The decision prohibits them from signing certain non-disparagement and confidentiality clauses in exchange for the severance packages.

The news

Last week, the NLRB alerted employers, saying they can no longer keep laid-off employees from sharing information in two specific ways that violate employees’ rights.

Employers are prohibited from attaching a confidentiality clause that requires the laid-off worker from sharing the terms of their severance agreement.

In addition, they cannot include non-disparagement clauses prohibiting them from discussing the terms and conditions of their employment.

“A severance agreement is unlawful if it preludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment,” the board wrote.

Who does the change apply to?

Although the change is significant, it doesn’t affect every company across various industries.

The majority of US private sector employers fall under the new rules’ umbrella as they are subject to the NLRB’s authority.

As a result, private sector employers must follow the latest decision.

Furthermore, it will apply to the employers’ union and non-union workers.

Andrew Herman of law firm Blank Rome LLP discussed the decision, saying:

“This board is signaling and reminding employers that the NLRB applies to employers regardless of whether workers are unionized.”

The exemption

While US private sector employers must abide by the NLRB’s decision, a few groups aren’t subject to their authority.

The exemptions include federal, state, and local government agencies, such as:

  • Public schools
  • Libraries
  • Parks
  • Railways
  • Airlines

The NLRB enforces the National Labor Relations Act, which means that some groups of workers are unlikely to be covered by the ban.

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Those excluded from the Act include:

  • Supervisors and managers who are authorized to hire, fire, set pay, and discipline employees
  • Independent contractors
  • Agricultural workers
  • Domestic workers
  • People employed by a parent or spouse

Influence on past legislations

Andrew Herman underlined how the decision doesn’t say if the ruling is retroactive, noting that the decision was hard to pin definitively.

According to Michael Healey of Wagner, Falconer & Judd Ltd, NLRB decisions can be presumed retroactive.

However, it is only exempted if it results in an injustice or is unfair to the employer.

He added that it’s fairly possible it isn’t retroactive because employers have offered severance agreements in the past few years following a 2020 NLRB decision overturned by the latest ruling.

According to some lawyers, it’s possible the labor board might consider making it retroactive if an employee files a charge for an alleged labor violation referring to a severance agreement signed or enforced in the past six months.

There is usually a six-month window similar to a statute of limitations to bring alleged violations to the board’s attention.

The new severance agreement condition

The NLRB’s new rule raises an important question: are employers prohibited from requiring workers to stay silent about the company in exchange for severance?

Although the rule makes it seem they can’t, employers can include the condition in certain situations.

Herman noted that they can still require leaving employees not to reveal trade secrets and confidential information to protect business interests.

In addition, employers can still ask employees to waive their right to make future claims or file lawsuits against them.

Impact on future severance decision

Regarding the impact on future severance decisions, employers have no legal requirements to offer a severance agreement.

However, most employers still make severance offers to maintain amity with employees and the surrounding community, which could economically impact the business’ workforce.

Employees offer severance to prevent getting sued, receiving bad word-of-mouth reviews and preventing future employees from applying or having their secrets shared.

Jon Hyman, a management-side attorney who doubles as the chair of the employment and labor practice at Wickens Herzer Panza, explained his severance offer, saying:

“I’m doing it because I want to get something from the employee in return. I’m buying finality [in having to deal with that employee].”

However, he noted that without the clause, an employer’s protection is reduced.

Hyman suggested that employers might want to pay less for it.

“There’s a real risk to employees that the case will have a negative impact on the size of severance packages going forward,” Hyman elaborated.

Image source: Hammer Smith Endocrinology