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Legally Speaking: Employee Severance Agreements

Updated: Mar 13, 2023

Employee severance agreements with broad non-disparagement and confidentiality provisions are now Illegal. Most employers entering into severance agreements with employees during a layoff or termination include a “confidentiality” clause prohibiting the employee from disclosing to any third person the terms of the agreement and a “non-disparagement” clause prohibiting the employee from saying bad things about the employer and its employees. But, in light of the recent NLRB decision of McLaren Macomb, prior NLRB precedent has been overturned and significant restrictions on the right of employers to present employees with severance agreements containing these provisions now exist for both union and non-union private employers – even if agreed to by the employee. Yes, the National Labor Relations Act is applicable to non-union employers as well and the NLRB is vigorously enforcing the law. The Board’s rationale is that such clauses have a tendency to interfere with employees’ rights to speak out regarding wages, hours, terms and conditions of employment guaranteed by Section 7 of the NLRA. While the decision does not close the door completely to the use of these clauses, the door is barely ajar.

The five member NLRB is now composed primarily of President Biden appointees and, along with the General Counsel of the NLRB, the Board is doing everything possible to enhance the rights of union and non-union employees and to facilitate union organizing. This ruling is just one of many which has come down in the recent past. It permits employees to speak badly about their employers at any time and in any forum without

ramification. If these provisions within an employer’s severance agreement are ruled illegal, the entire severance agreement, including a “release of all claims” and a “covenant not to sue” the employer, can fail as well unless the agreement contains a severability clause. This means the employer will not have bought the peace that it expected when entering into the agreement and making the severance payment. It may also mean the employer will face a costly wrongful termination lawsuit.

Employers intending to continue to utilize such clauses must revise them drastically if there is to be any hope of the NLRB accepting such. The clause must be very specific, comprehensive and prominently displayed. The “non-disparagement” clauses now must, at least, be limited to employee statements which evidence a malicious motive or are made with the knowledge of falsity or reckless disregard for truth. And, it must be limited to employee criticism that relates to company products, services or customers, and not to wages, hour, terms and conditions of employment. The “confidentiality” clauses must, at least, be limited to the disclosure of the financial terms of the agreement. Other NLRB restrictions may be imposed as well. For agreements with supervisors, the prohibitions are not quite as strict. The NLRB will further define all of these new restrictions in the near future. But, until then, the exact requirements for lawful clauses remain unsettled and employers are left unprotected – and, subject to NLRB unfair labor practice charges. For a detailed discussion of this significant decision, see the Taft/Law article here.

For additional information and redrafting of your severance agreement, contact Bob Dunlevey, Board Certified Specialist in Labor and Employment Law, at (937) 641-1743 or email rdunlevey@taftlaw.com.


LEGAL SERVICES PLAN

DRMA members are eligible to receive one free legal consultation per month from employment law attorney Bob Dunlevey. If you need legal advice concerning labor, safety, real estate, or other business issues, give Bob a call at (937) 641-1743. Be sure to identify yourself as a DRMA member.

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