The National Labor Relations Board (NLRB) recently ruled that companies can no longer offer severance agreements that include non-disparagement and confidentiality clauses.
“Employers intending to lay off workers should consult with competent employment counsel to review their severance agreements ASAP,” Sarah Sepasi, managing attorney at Los Angeles-based law firm Sepasi Legal, P.C., told HRD.
“Overly broad confidentiality and non-disparagement clauses must be revised to remove any language that could preclude an employee from assisting coworkers with workplace issues concerning their employer. Although the implications of this ruling remain to be seen, there’s certainly a shift in power dynamics at the severance negotiation table. The ‘silence’ employers achieved from entering severance agreements prior to this ruling may quickly become a thing of the past.”
The NLRB ruling could go so far as to discourage some companies from offering severance packages altogether, according to Michael Brewer, managing partner of international law firm Baker McKenzie's California offices in San Francisco, Palo Alto and Los Angeles.
“A lot of times, confidentiality is the peace the employer wants to buy,” Brewer, chair of the firm’s global employment and compensation practice, told HRD. “I can picture a CEO telling the HR director that if we’re offering severance, it’s going to be confidential. But now, if it’s at odds with this NLRB ruling, we’re not going to take that chance, so we’re just not going to offer any severance.”
At the same time, Brewer says, non-union employers who really value non-disparagement and confidentiality clauses may take their chances.
“The odds of a non-union employer being hit with an unfair labor practice charge aren’t nearly as high as they would be for a unionized workplace,” Brewer says. “So some employers may take a wait-and-see approach to see if the decision gets challenged, and to see if there’s any clarification on the scope of the ruling.”
For example, the NLRB ruling alluded to the possibility that severance agreements can include disclaimers that allow for non-disparagement and confidentiality provisions. “A disclaimer could say we’ll have these in the agreement, and at the same time, beef up the idea that employees aren’t waiving their Section 7 rights,” Brewer says. “I expect we’ll get more guidance on what an acceptable carve out may look like.”
