Employees in 2023 have many statutory weapons to challenge employment separations. Civil rights claims are the most common, but employees may also assert disability discrimination, failure to accommodate, or denial of the right to take medical leave due to pregnancy, adoption or serious health conditions. Perhaps the broadest employee protection of all is in the National Labor Relations Act (NLRA), which protects the right to protest working conditions and to engage with coworkers in “mutual aid and protection” (including organizing a union).

These new (and old) statutory rights have increased the frequency of employment challenges. At the same time, the cost of defending them has dramatically increased. Legal challenges that proceed to trial are painfully expensive, forcing many employers to purchase costly insurance to protect against that risk.

So how do employers protect themselves? Other than sound policies and human resource practices, there’s only one preferred technique: severance agreements. In the simplest terms, severance agreements typically involve an employer paying extra money to departing employees in exchange for a promise not to pursue additional claims.

Usually, severance agreements include “confidentiality” and “non-disparagement” provisions. Confidentiality clauses prohibit former employees from advertising either the agreement itself or the severance amount to coworkers or the general public. Non-disparagement clauses prevent departing employees from harming the reputation of the business or individual managers through public ridicule (including social media).

There was a time when “confidentiality” and “non-disparagement” clauses were non-controversial. That began changing during the Bush and Obama Administrations when the National Labor Relations Board (NLRB) developed new theories. One new theory was that confidentiality and non-disparagement clauses have the effect of “chilling” an employee’s right to protest working conditions or to help coworkers. Remember, criticizing an employer (or manager) and coworker, “mutual aid and protection,” is protected by the NLRA.

In 2020, the NLRB, comprised of a majority of Trump appointees, gave employers relief and additional guidance. The Trump-appointed majority declared that confidentiality and non-disparagement clauses are legal, except in limited circumstances involving other types of unlawful employer conduct.¹ Unfortunately for employers, that declaration has now changed again. In late February of 2023, under the NLRB majority appointed by President Biden, confidentiality and non-disparagement clauses are now illegal, again, unless narrowly tailored to the point where they become far less valuable to employers.²

Later, on March 22, 2023, the NLRB’s top lawyer published additional guidance on this subject.³ The guidance from the NLRB’s General Counsel is far more onerous and declares:

• The new standard has “retroactive application.” That means, even if a severance agreement was lawful when signed, it can still be challenged when and if employers try to enforce it.
• The new standard does “not depend on the existence of an employment relationship between the [former] employee and the employer.”
• Severance agreements can waive an employee’s right to pursue additional employment claims only as to claims arising as of the date of the agreement, and only if they do not have “overly broad provisions” that prohibit conduct protected by the NLRA.
• Whether an employee actually signs the agreement is irrelevant. “[The mere] proffer itself inherently coerces employees …”
• Confidentiality clauses may still be lawful, but only when “narrowly-tailored to restrict dissemination of proprietary or trade secrets … for periods of time based on legitimate business justifications.” In other words, employers cannot prohibit the publication of the existence or amount of the severance agreement.
• Also, “confidentiality clauses that have a chilling effect that precludes employees from assisting others about workplace issues and/or from communicating with the [NLRB], a union, legal forums, the media or other third parties are unlawful.”
• Non-disparagement clauses are lawful only where the clause is “narrowly-tailored” to prohibit statements that are “maliciously untrue and made with knowledge of their falsity or with reckless disregard for their truth …”

It’s important to recognize that the NLRA does not apply to supervisors. It applies only to rank and file employees.

Regardless, this development is very disappointing for employers. The new criteria will diminish the value (and perhaps frequency) of severance agreements. That unfortunately means more controversy and legal disputes.