It’s been a common practice – in some industries more than others – for companies to include a non-disparagement clause in their severance agreements. Often these agreements also include non-disclosure and non-compete clauses.
These are ways for companies to maintain some control over things that former employees can do after they’re gone that could harm the company. These clauses can carry penalties like legal action that could cost former employees many thousands of dollars if they breach them.
Gradually, the federal government as well as some states are prohibiting or limiting the use of these clauses. Advocates for these changes say that such restrictive clauses and agreements can prevent people from obtaining new employment or from speaking out about discriminatory or even unsafe work conditions. Some restrictive clauses prohibit former employees from speaking either privately or publicly and from even disclosing that they signed an agreement.
Why non-disparagement clauses violate the law
This February, the National Labor Relations Board (NLRB) issued a rule designed to minimize the use of non-disparagement clauses in severance agreements. The rule was issued in response to a case that came before the board. However, it applies to most private employers and is retroactive to agreements signed before the rule.
The NLRB’s decision in the case and the new rule essentially overturn a decision in another case in 2020 that said non-disparagement clauses weren’t unlawful. However, the NLRB explained in a press release after the new rule was issued that “offering employees a severance agreement that requires them to broadly give up their rights under Section 7 of the Act violates Section 8(a)(1) of the Act.”
The NLRB Chairman stated, “It’s long been understood by the Board and the courts that employers cannot ask individual employees to choose between receiving benefits and exercising their rights under the National Labor Relations Act. Today’s decision upholds this important principle and restores longstanding precedent.”
Employers may still be able to use non-disparagement clauses in severance agreements for executives and other higher-level employees. However, before asking any employee to sign a severance agreement with any type of non-disparagement clause, it’s wise to seek legal guidance.