Employers understand that professionals and executives do not stay with them forever and try to limit their competition and career growth after they leave. Severance agreements are used to protect employers but often restrict professional opportunities for their employees.
The National Labor Relations Board issued a decision earlier this year that severance agreements with overly extensive confidentiality and non-disparagement provisions violated section 7 of the National Labor Relations Act.
Following this decision, the NLRB general counsel issued a memorandum in March attempting to address issues raised by this decision. This memorandum is not a binding precedent but could play a role in future NLRB enforcement actions.
Major issues
The NLRB, in this memorandum, stated that legal severance agreements may be offered to employees and enforced if these do not have overly wide terms that affect an employee’s right to engage with each other to improve their position. Employees also have the right to communicate with their governing boards, union, the court, the legislature or other third parties.
Employers cannot issue communications that can interfere with, restrain, or coerce their employees’ legal rights under Section 7 of the NRA. This includes pre-employment letters.
Employers may not retaliate against supervisors who refuse to present an illegal agreement to an employee.
Confidentiality clauses are legal if these are limited to prohibiting an employee from sharing proprietary or trade secret information for a time period based on a valid business justification. Non-disparagement terms are typically illegal unless they prohibit maliciously untrue statements.
Unlawful confidentiality or non-disparagement terms will not necessarily invalidate the entire agreement. But employers should consider informing employees now that these terms are being corrected. Also, savings clauses or disclaimer language may be used to resolve unclear terms but may not always address overly broad terms.
Effect
The NLRB’s decision underlying this memorandum is retroactive under a six-month statute of limitations. The NLRB would not, for example, find a violation if a company issued an overly-board severance agreement over six months ago. But keeping or enforcing that unlawful agreement would violate the NRA.
Other common severance terms may be illegal under the NLRB’s decision. These may include non-competition, no solicitation terms and overly broad liability releases. Professionals may need to review their agreements and career plans with an attorney in light of this recent guidance.