Employee terminations are a fact of life for agencies. While terminations are sometimes amicable and the agency can wish the employee well in her next endeavor, some terminations can be bumpy. Maybe the employee is alleging bad behavior by the agency, or maybe the employee’s performance has been substandard for a while. Or maybe there is a mix of factors such as improper conduct by an employee who is part of a protected class.
When your agency faces one of these bumpy terminations, it is common to ask the employee to enter into a severance agreement. A severance agreement typically offers the employee some sort of payment (the severance) in exchange for some promises from the employee. Important among those is a promise by the employee not to sue the agency. But severance agreements often contain other terms. Common among these other terms are confidentiality obligations (a “Confidentiality Clause”) and a promise by the employee not to disparage the agency (a “Non-disparagement Clause”). Despite the commonality of these provisions, a new decision by the National Labor Relations Board (NLRB) dramatically changed how both clauses need to be written in severance agreements in order to be enforceable.
On February 21, 2023, the NLRB issued a decision stating that the language of typical Confidentiality Clauses and Non-disparagement Clauses are illegal because they infringe on an employee’s right to organize (form a union) or help other employees organize. Because of this decision, most agencies must revise their form of severance agreement to ensure that it complies with this new interpretation.
Does My Severance Agreement Conform to NLRB Guidance?
The Confidentiality Clause and the Non-disparagement Clause the NLRB determined to be illegal both had language that was very common for these types of clauses. These clauses stated that the employee was prohibited from disclosing information about the employer or the severance agreement to anyone other than the person’s spouse and professional advisors. These clauses were illegal because they did not allow the employee to cooperate with the NLRB, talk to other employees about wages or severance, or take other steps to organize (or help other employees organize).
To determine if your agency’s form of severance agreement has a problem, look for these things:
No language allowing the former employee to cooperate with the NLRB
No language allowing the former employee to talk to other employees about severance and wages
No language allowing the former employee to engage in other unionizing activity
A remedies clause giving the agency the right to an injunction or damages against the employee for breaching a severance agreement missing the language described above
Because the NLRB decision is so new, most severance agreements we have reviewed contain problematic language. Most agencies would benefit from talking to a lawyer about updating their form of severance agreements and how to navigate this rule going forward.
What About Other Contracts with Employees?
The NLRB decision also applies to other agreements you may have with your employees, such as new hire letters, employment agreements, employee handbooks, employee confidentiality agreements, and employee proprietary information assignment agreements.
If your agency uses any of these types of agreements with employees, now is a good time for a global tune-up.
Are Prior Severance Agreements Affected by the NLRB Ruling?
This new ruling applies to severance agreements you entered into going forward as well as those you entered into prior to February 21, 2023.
That said, there may be little you can do to correct agreements that were entered into prior to this decision. But if you entered into any major severance agreements in the last few years (used to resolve a major claim, significant severance), you may wish to connect with a lawyer to evaluate the risk that this decision could be used to invalidate those agreements.
A New Path for Severance Agreements
The NLRB decision invalidated what had been common language in many severance agreements. To that end, most agencies would benefit from a review of their existing severance agreements, employment agreements, confidentiality agreements, and the like to determine revisions needed to comply with this new rule.
We recommend lawyers who specialize in advising creative agencies to help you develop agreements that comply with these new requirements.
