The National Labor Relations Board recently issued a decision with potentially far-reaching effects on severance agreements. The National Labor Relations Act prohibits employer action that may chill employee speech about terms and conditions of employment. The NLRB’s recent decision concluded that requiring an employee, via a severance or separation agreement, to keep matters confidential will likely violate the law’s prohibition on chilling such speech. A non-disclosure term would fall into this new interpretation of the prohibition. Likewise, a clause requiring employees not say anything negative, disparaging, critical, or harmful about an employer, even if truthful or an opinion, will likely also violate the law. See the NLRB press release here: Board Rules that Employers May Not Offer Severance Agreements Requiring Employees to Broadly Waive Labor Law Rights | National Labor Relations Board (nlrb.gov)
This new rule has far-reaching effects. Nearly all standard severance agreements will have confidentiality and non-disparagement terms built in. These requirements are typically desired by employers in addition to obtaining broad releases of liability from the employee in exchange for making any kind of severance payment.
One likely effect of the decision is that employers may be less generous in offering severance payments altogether or in offering smaller amounts in exchange for releases. While the decision is based on policies to protect employee rights, it raises many questions about its scope. At this time, the NLRB does not appear likely to enforce the rule to forbid confidentiality and non-disparagement in settlement agreements, although this could be the next situation that the NLRB considers. There may also be scenarios of highly compensated employees where the terms would be found permissible in a severance or separation agreement. Regardless, the rule will not allow employees to defame an employer by making false, public statements that could harm its reputation. The law is developing here, so every situation must be looked at on a case-by-case basis.
Employers crafting severance agreements or employees considering entering into such agreements should think carefully about rights they may give up or obligations they may take on through the agreements. Consulting with an experienced attorney to draft or review any proposed agreement is highly advisable.
Bonnie Boryca frequently advises employers and executives on severance and separation agreements. She can be reached at 402-397-2200 or boryca@eslaw.com.