Severance Agreements
A groundbreaking federal decision in early 2023 changed the rules about what business owners can (and cannot) put into employee severance agreements. Broad promises of confidentiality? Risky! Non-disparagement provisions? Beware! So exactly what can business owners put into their severance agreements? Follow these guidelines and you'll be well on your way to crafting a new, enforceable type of severance agreement:
Confidentiality Provisions:
- Business owners can restrict employees from disclosing proprietary or trade secret information for a period of time based on legitimate business justifications. However, confidentiality provisions are unlawful if they have a "chilling effect" on employees' ability to discuss (i.e., complain to co-workers) about workplace concerns and/or from communicating with the NLRB, a union, legal forums, the media or other third parties about workplace conditions.
Non-Disparagement Provisions:
- Business owners can restrict employees from engaging in defamation, which basically means knowingly spreading maliciously untrue information. However, gone are the days where employees can be forced to stay silent about their experiences at work or about the nature of their claims against your business.
While the federal decision spoke directly of the non-disparagement and confidentiality provisions as explained above, it also stated that other provisions, such as non-compete and no solicitation clauses, might also interfere with employees’ rights.
A severance agreement Can Not:
- require employees to waive their right to contact federal investigators to report workplace concerns,
- prohibit employees from assisting their co-workers in reporting workplace concerns,
- waive legal rights in the future,
- enforce an unduly harsh penalty for the employee's breach of the agreement in any way (harsh penalties include but are not limited to: immediate return of back pay, frequently with interest, and payment of all costs and expenses, including attorneys' fees).
Fortunately, the law still says that a severance agreement Can:
- require employees to waive any claims arising before the severance agreement is signed,
- require employees to waive any right to work for that employer in the future.
Because the provisions can be tricky to navigate, many business owners have questions about how to write or update their severance agreements. Please reach out to us so we can review and advise your business on the language used in your severance agreements, thereby ensuring that your company and your employees are following the law.
