Employer Overreach
The drafting of Severance and Release Agreements has long been controlled by employers to the disadvantage of employees. Over my nearly three decades of representing employees in discrimination, retaliation, wage disputes, harassment, and defamation cases, I’ve seen the same employer boilerplate language in these severance and release agreements. These release agreements not only attempt to release liability but secure the employee’s silence about the settlement and prevent the employee from disparaging the employer. Often, there’s a provision that allows the employer easier access to obtain an injunction if the employee is engaged in alleged violations of the agreement. Employers will sometimes include “liquidated” damages clauses, meaning, contrary to law, that the employee will be financially penalized if found in breach of the agreement. Employers will also add trade secrets and proprietary information provisions. The employer’s legal counsel will customarily be the one to “draft” the settlement agreement, which often means nothing more than inserting a few variables in a multi-page document. At the end of the day, the “release” agreement is about much more than the payment of money for a dismissal of the case. For some employees, particularly lower staff levels, these provisions may have little impact on their futures. For others, the employer “add-ons” can expose them to intimidating lawsuits, ultimately without merit, but that have to be defended.
The NLRB Shifts the Balance of Power in Severance and Release Agreements
The National Labor Relations Board [NLRB] recently ruled that offers of severance that include confidentiality and non-disparagement clauses violate workers’ rights, union, and non-union, to discuss working conditions freely. Severance and Release Agreements that attempt to completely silence an employee from any negative comment about employer practices go too far. Severance and Release Agreements that attempt to silence an employee from disclosing unfair or potentially illegal work practices in exchange for a payoff (severance) go too far. The basic purpose of the National Labor Relations Act is to allow employees to combine to obtain better working conditions than any one employee alone could achieve. Freedom to communicate about working conditions is therefore essential to the purposes of the Act. Before this NLRB ruling, these non-disclosure, confidentiality, and non-disparagement provisions were in nearly every employer severance agreement. It will be interesting to see how the boilerplate changes. Defense attorneys may conspire with non-unionized employer clients to thumb their noses at the NRLB by electing to include these non-disparagement and confidentiality provisions in full force, knowing that many non-union employees, without union representation or funding, may accept the terms from ignorance or lack of resources. Of course, if the employer sues, the employee can claim the term is illegal and unenforceable. But in the meantime, the uneducated employee may believe the term covers him, and he must comply. I see this cynical tactic sometimes in California severance agreements that purport to hold an employee to a non-compete clause by selecting a foreign state’s law to govern the Agreement, although California law invalidates both the choice of law and non-compete provisions. It will be important for employee attorneys reviewing these severance agreements to educate their clients and to insist on terms that conform to NLRB rulings and California law.
California Enacts Its Version of Laws Exposing Employer Misconduct
California, on January 1, 2022, prohibited employers from including non-disparagement and confidentiality clauses in their employment agreements unless those agreements included a pre-scripted statement that the restrictions did not apply to acts of discrimination, harassment, and retaliation. The “Silenced No More Act,” as the name implies, addresses employer misconduct by allowing employees to share their stories and support their claims. The highly publicized cases of serial harassers who have the power and support of the company to buy the victim’s silence are the cultural moment behind the new law.
Severance agreements in California now also require the employer to accord the employee no less than five business days to consider the agreement and inform the employee that the employee has the right to consult an attorney. While the employer cannot silence the employee from discussing the conditions and behaviors leading to the settlement, it can restrict the employee from disclosing the settlement amount. Negotiating severance agreements will not be the same after the “Silenced No More Act.” View my article on negotiating severance agreements.
Implications of the NLRA and California Changes to Severance and Release Agreements
The NLRA ruling and the California “Silenced No More” statute have several implications. First, employers will now be less able to cloak unfair labor practices or shield toxic managers from exposure. Further, employees who want compensation and also to see changes in work practices for the good of all employees now have a space to express those concerns. Employees now have more freedom to act collectively to check an abusive manager. Employees do not have to accept the standard employer one-sided severance and release agreement boilerplate. The NLRB and California changes to Severance and Release Agreements make it easier for past victims to come forward to support the case of an employee seeking witnesses for her case against the serial harasser. These witnesses will no longer be instructed to say, “I can’t talk about that,” because of a confidentiality agreement. Even if the former employee signed a confidentiality agreement, she will not be bound by it because it will be unenforceable as contrary to public policy by law. In summary, the balance of power has shifted to improve working conditions. This is a win for both employers and employees.