Severance – Parting ways with an employee, whether by mutual agreement or otherwise, is never easy.
Regardless of how the decision was reached, businesses normally issue severance money to dismissed employees.
It is an important technique that lessens the impact of an involuntary termination.
Additionally, it is a method used to prevent future litigation when the employee signs a release for severance.
Now, the National Labor Relations Board recently issued a judgment prohibiting companies from asking discharged workers to sign contracts.
In exchange for the severance payouts, they must sign specific non-disparagement and secrecy terms, according to the judgment.
The news
The NLRB issued an advisory to employers last week, stating that they may no longer prevent laid-off employees from exchanging information in two ways that violate employees’ rights.
Companies are not permitted to include a confidentiality clause that forces the laid-off employee to share the contents of their severance agreement.
Furthermore, they cannot incorporate non-discrimination clauses that ban them from discussing the terms and circumstances 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.
Because the NLRB has power over the majority of American private sector firms, the new regulations apply to them.
As a result, private-sector employers must comply with the most recent ruling.
It will also apply to both union and non-union employees of the companies.
Blank Rome LLP’s Andrew Herman commented on the ruling, saying:
“This board is signaling and reminding employers that the NLRB applies to employers regardless of whether workers are unionized.”
The exemption
While private-sector employers in the United States must follow the NLRB’s judgment, a few categories are exempt.
Federal, state, and municipal government agencies are excluded, including:
- Public schools
- Libraries
- Parks
- Railways
- Airlines
Because the NLRB implements the National Labor Relations Act, some categories of employees are unlikely to be affected by the restriction.
Read also: Job cuts and hiring, two enigmas in the US market
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 did not state whether the decision is retroactive, stating that the conclusion was difficult to pin down precisely.
The NLRB decision, according to Michael Healey of Wagner, Falconer & Judd Ltd, can be assumed retroactive.
However, it is excused only if it causes an injustice or is unjust to the employer.
He said that it’s probable it’s not retroactive because companies had offered severance agreements in recent years in response to a 2020 NLRB judgment that was overturned by the new verdict.
According to some attorneys, if an employee files a case for an alleged labor breach relating to a severance agreement signed or enforced during the last six months, the labor board may consider making it retroactive.
There is normally a six-month deadline to bring such infractions to the board’s notice, analogous to a statute of limitations.
The new severance agreement condition
The NLRB’s new rule raises an essential question: are businesses forbidden from asking workers to keep silent about the firm in exchange for severance?
Although the regulation makes it seem they couldn’t, employers can insert the requirement in specific cases.
Herman highlighted that they might still compel exiting workers not to leak trade secrets and private information to safeguard corporate interests.
In addition, companies can still require employees to relinquish their right to bring future claims or launch lawsuits against them.
Impact on future severance decision
In terms of the influence on future severance choices, employers are not required by law to provide a severance agreement.
But still, most firms continue to issue severance packages in order to retain goodwill with employees and the surrounding community, which may have an economic influence on the company’ workforce.
Workers provide severance pay to avoid being sued, experiencing negative word-of-mouth ratings, and discouraging prospective employees from applying or having their secrets revealed.
Jon Hyman, a management-side attorney who also serves as the chair of Wickens Herzer Panza’s employment and labor practice, described his severance package, saying:
“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 without the clause, an employer’s protection is diminished.
Employers, according to Hyman, may prefer to pay less 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: Employers’ Lawyers Blog
