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Employers Beware: Your Employee Severance Agreement May Violate New Federal Law

Employers Beware: Your Employee Severance Agreement May Violate New Federal Law

The National Labor Relations Board has ruled that it’s unlawful for U.S. companies to offer departing employees a severance agreement that includes ‘gag clauses’ like non-disparagement and confidentiality provisions.

On Tuesday, February 21, 2023, the NLRB issued a decision that prohibits employers from offering severance agreements that require the employees to waive their rights under the National Labor Relations Act (NLRA Section 7).

Severance agreements offered to laid-off employees cannot prohibit, or “broadly restrict,” them from making statements that could disparage the employer or from disclosing the terms of the agreement itself.

The NLRB observed that such offers constitute an attempt to deter employees from exercising their statutory rights and effectively conditions the surrender of these rights for the benefits provided in the agreement.

It further noted that they might violate workers’ right to organize, as well as deter furloughed employees from cooperating with government investigations related to the employer.

The NLRB’s new rule reverses previous decisions issued in 2020. It is effective for both unionized and non-union companies and organizations.

Exceptions to the new rule include certain independent contractors, senior-level employees, public sector workers, and agricultural workers.

While it remains somewhat unclear, existing severance agreements that include confidentiality and/or non-disparagement provisions are likely no longer enforceable, but they are also not subject to Unfair Labor Practice charges (which have a 6-month expiration regardless).

Additionally, it remains an open question whether new severance agreements that are carefully drafted to explicitly reserve employees’ rights under the NLRA while still containing non-disparagement and confidentiality provisions will be acceptable to the NLRB.

Employers should review their severance agreement documents and practices. For any questions or assistance, contact us.