It’s WORSE than we thought. Most of your severance agreements may be ENTIRELY WORTHLESS!

Last month, I told about a National Labor Relations Board decision to ban certain nondisparagement and confidentiality provisions in a severance agreement that businesses give to rank-and-file employees (i.e., non-supervisors) in both union and non-union workplaces.

But there remained some open questions. For example, does the decision apply retroactively to old agreements? What if the employee requests mutual confidentiality language or nondisparagement provisions? What other typical severance agreement provisions are at risk? 

Yesterday, we got answers from the Board’s top lawyer. (You may want to sit down and grab a whiskey bottle stress ball.)

What I’m about to share with you comes from the Board’s General Counsel. It’s a guidance memo that does not carry the weight of law. But, since she is issuing it to all Field Offices, you can be sure that this is how the Board will operate at the local level in the future.

So, let’s break down the memo.

Are all severance agreements now banned?

No. 

What if an employee does not sign the severance agreement?

It doesn’t matter. The GC believes the proffer itself inherently coerces employees by conditioning severance benefits on the waiver of statutory rights such as the right to engage in future protected concerted activities, also known as their Section 7 rights.

Are severance agreements issued to supervisors beyond the scope of this decision?

Mostly, but not always. For instance, the Board will protect a supervisor who is retaliated against, such as being fired for refusing to act on their employer’s behalf in committing an unfair labor practice against employees.

Is the Board’s decision retroactive?

Yes. While an unlawful proffer of a severance agreement may be subject to the six-month statute of limitation language, attempted enforcement would restart the clock.

Would the entire severance agreement be null and void if there is just one overbroad provision?

Probably just the unlawful provisions, regardless of whether there is a severability clause or not. 

What other typical severance provisions might be too broad?

General releases and covenants not to sue that may go beyond the employer and/or may go beyond employment claims and matters as of the effective date of the agreement; restrictive covenants; anything else that impedes Section 7 rights.

Why protect former employees?

The Act’s definition of “employee” is hecka-broad. Plus, former employees can still assist the Board and share information about the working conditions they experienced in a way that constitutes mutual aid and protection.

Do surrounding circumstances surrounding the proffer of a severance agreement matter?

No, because the Board specifically said that an employer could have no legitimate interest in maintaining a facially unlawful provision in a severance agreement, much less an interest that somehow outweighs the Section 7 rights of employees.

What if employees themselves request broad confidentiality and/or nondisparagement clauses?

Pfft. The clauses are still unlawful.

Are there ever confidentiality provisions in a severance agreement that could be found lawful?

Confidentiality clauses that are narrowly tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications may be considered lawful.

Plus, non-Board settlements that contain clauses that prohibit disclosing the financial terms of a settlement continue to be appropriate. Thus, confidentiality clauses that prohibit an employee from disclosing the financial terms of the settlement to anyone other than the person’s family, attorney and financial advisor are normally acceptable.

However, confidentiality clauses that have a chilling effect that precludes employees from assisting others about workplace issues and/or communicating with the Board, a union, legal forums, the media, or other third parties are unlawful.

Are there ever nondisparagement provisions in a severance agreement that could be found lawful?

The memo indicates that this could work:

“Employee shall not make any maliciously untrue statements about the Company, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity.“

Would a “savings clause” or disclaimer save overbroad provisions in a severance agreement?

Probably not. At least not yet. The GC is pushing for the Board to craft a model savings clause. But, trust me, you won’t like it. It will be a de facto “How to exercise your rights and form a union.

What’s the general takeaway here?

(This is me talking; not the GC.)

If you operate a unionized company, your severance agreement it’s far more likely that the Board will scrutinize your severance agreements. And the problem is that all it takes in one bad agreement to open up Pandora’s Box.

But let’s say that you operate a non-union company, and you offer an employee a severance agreement with overly-broad confidentiality and nondisparagement provisions. If they accept it, what are the odds that the employee takes the money, and then alerts the Board? Very low, unless perhaps you try to enforce one of those provisions later. (Although theoretically, they could reject the offer, sue you, and try to jam you up at the Board too.)

So, on the one hand, it comes down to your level of risk tolerance. On the other hand, I suspect that the issues get litigated at some point and we’ll see what a court has to say about the Board’s decision and the GC’s guidance memo.

The only guaranteed winners are the lawyers.