Severance – Parting ways with an employee, whether by mutual accord or not, is never painless.
Severance money is frequently given to sacked workers regardless of how the decision was reached.
It is a critical strategy for reducing the consequences of an involuntary termination.
When an employee signs a release for severance, it is also utilized to avert future claims.
The National Labor Relations Board recently announced a judgment prohibiting companies from compelling dismissed employees to sign contracts.
According to the ruling, they must sign non-disparagement and secrecy agreements in exchange for the severance benefits.
The National Labor Relations Board (NLRB) issued a rule to employers last week, noting that corporations may no longer prohibit laid-off employees from conveying information in two methods that violate employees’ rights.
Companies are not permitted to include a confidentiality clause requiring the laid-off employee to divulge the specifics of their severance agreement.
They also cannot add non-discrimination clauses that prevent them from publicizing their employment terms and conditions.
“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 transition is significant, it does not influence all businesses in all industries.
Because the NLRB has power over them, the new laws apply to the vast majority of American private-sector businesses.
As a result, private-sector employers must follow the most recent rule.
It will also apply to employees of both union and non-union businesses.
Blank Rome LLP’s Andrew Herman responded to the judgment, saying:
“This board is signaling and reminding employers that the NLRB applies to employers regardless of whether workers are unionized.”
While employers in the private sector in the United States must follow the NLRB’s decision, there are a few exceptions.
Federal, state, and municipal governments are not covered, nor are the following:
- Public schools
Because the NLRB is in charge of implementing the National Labor Relations Act, some sorts of employees are unlikely to be affected.
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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 emphasized that the ruling does not state whether it is retroactive, and thus the outcome is impossible to pinpoint accurately.
The NLRB verdict is retroactive, according to Michael Healey of Wagner, Falconer & Judd Ltd.
Yet, it is only pardoned if it causes an injustice or is unjust to the employer.
He believes it is unlikely to be retroactive since firms made severance agreements in past years in response to an NLRB judgment announced in 2020 that was overturned by the present verdict.
Some attorneys think that if an employee sues for an alleged labor breach involving a severance agreement signed or enforced within the preceding six months, the labor board will consider making it retroactive.
Generally, bringing such infractions to the board’s notice has a six-month deadline, equivalent to a statute of limitations.
The new severance agreement condition
The NLRB’s new rule raises an essential question: is it illegal for employers to encourage employees to keep silent about the firm in exchange for severance pay?
Despite the rule’s appearance, employers can add the requirement in specific circumstances.
Herman noted that companies might still persuade existing workers not to expose trade secrets or confidential information in order to safeguard company interests.
Employers might nevertheless request that workers relinquish their ability to make future claims or lawsuits against them.
Impact on future severance decision
Employers are not required by law to provide a severance agreement, which affects future severance decisions.
Yet, in order to retain goodwill with employees and the surrounding community, most firms continue to issue severance compensation, which may have a financial impact on the company’s workforce.
Employees offer severance pay to prevent being sued, suffering negative word-of-mouth assessments, discouraging new employees from applying, or having their secrets revealed.
Jon Hyman, a management-side lawyer who also leads the employment and labor practice at Wickens Herzer Panza, summarized his severance payout 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, point out that the lack of the clause reduces an employer’s protection.
Employers, according to Hyman, can decide 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.
Image source: The Crone Law Firm