Severance – It is never easy to part ways with an employee, whether by mutual consent or otherwise.
Businesses usually give severance pay to fired employees, regardless of how the decision was made.
It is a crucial approach for mitigating the effects of an involuntary termination.
It is also a tactic used to avoid future lawsuits when an employee signs a release for severance.
Recently, the National Labor Relations Board has issued a decision forbidding firms from requiring terminated employees to sign contracts.
According to the verdict, in exchange for the severance payments, they must sign non-disparagement and confidentiality agreements.
Last week, the NLRB issued a guideline to employers, stating that companies may no longer bar laid-off employees from communicating information in two ways that violate employees’ rights.
Businesses are not allowed to incorporate a secrecy clause that requires the laid-off employee to reveal the terms of their severance agreement.
They also cannot include non-discrimination clauses that prohibit them from disclosing the terms and conditions of their employment.
“A severance agreement is unlawful if it preludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment,” the board wrote.
Who does the change apply to?
Although the shift is substantial, it does not affect all companies in all industries.
The new laws apply to the majority of American private sector enterprises since the NLRB has authority over them.
As a result, employers in the private sector must follow the most current rule.
It will also apply to both union and non-union company personnel.
Andrew Herman of Blank Rome LLP reacted on the decision, saying:
“This board is signaling and reminding employers that the NLRB applies to employers regardless of whether workers are unionized.”
While private-sector employers in the United States must obey the NLRB’s decision, there are a few exceptions.
Federal, state, and local governments are not included, as are:
- Public schools
Because the NLRB is in charge of enforcing the National Labor Relations Act, the limitation is unlikely to affect certain types of employees.
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Those excluded from the Act include:
- Supervisors and managers who are authorized to hire, fire, set pay, and discipline employees
- Independent contractors
- Agricultural workers
- Domestic workers
- People employed by a parent or spouse
Influence on past legislations
Andrew Herman stressed that the judgment did not say whether it is retroactive, adding that the result was difficult to pin down precisely.
According to Michael Healey of Wagner, Falconer & Judd Ltd, the NLRB ruling is retroactive.
It is, however, forgiven only if it creates an injustice or is unfair to the employer.
He believes it is unlikely to be retroactive because corporations issued severance agreements in previous years in response to a 2020 NLRB decision that was overturned by the current ruling.
Some attorneys believe that if an employee brings a lawsuit for an alleged labor violation pertaining to a severance agreement signed or enforced during the previous six months, the labor board will consider making it retroactive.
Normally, there is a six-month deadline to bring such offenses to the board’s attention, similar to a statute of limitations.
The new severance agreement condition
The NLRB’s new rule raises an important question: are employers prohibited from encouraging employees to remain silent about the company in exchange for severance pay?
Although the rule makes it appear that they cannot, employers can include the requirement in certain instances.
Herman emphasized that businesses may still persuade current employees not to reveal trade secrets and private information in order to protect corporate interests.
Nevertheless, employers can still ask employees to waive their right to file future claims or lawsuits against them.
Impact on future severance decision
Employers are not compelled by law to issue a severance agreement, which has an impact on future severance decisions.
Yet, in order to maintain goodwill with workers and the surrounding community, most businesses continue to offer severance payouts, which may have an economic impact on the company’s personnel.
Workers provide severance money in order to avoid being sued, receiving unfavorable word-of-mouth evaluations, deterring new employees from applying, or having their secrets disclosed.
Jon Hyman, a management-side lawyer who also chairs Wickens Herzer Panza’s employment and labor practice, described his severance package as follows:
“I’m doing it because I want to get something from the employee in return. I’m buying finality [in having to deal with that employee].”
He did, however, remind that an employer’s protection is lessened in the absence of the provision.
According to Hyman, employers could opt to pay a lower price for it.
“There’s a real risk to employees that the case will have a negative impact on the size of severance packages going forward,” Hyman elaborated.
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