Recent Severance Pay Ruling May Cost Employees
By: Kaydee Ambas · February 28, 2023 · Reading Time: 3 minutes
No More Strings Attached
The National Labor Relations Board, or NLRB, recently ruled that employers under its purview are prohibited from asking laid-off workers to waive certain rights in exchange for severance pay.
Specifically, employers may no longer require departing employees to sign non-disparagement or certain confidentiality clauses, such as those prohibiting employees from divulging information about hours, compensation, health and safety issues, or severance terms.
Employers will retain the right to require workers to keep trade secrets confidential. Additionally, the rule doesn’t prohibit employers from asking departing employees not to sue in the future.
The new ruling applies to most private sector employers, whether unionized or not. It does not include employers that aren’t subject to the National Labor Relations Act, such as railways, airlines, government agencies, independent contractors, and domestic and agricultural workers.
The NLRB did not specify whether the rule applies retroactively. If so, it could impact thousands of knowledge workers left without work in the wake of recent widespread tech sector layoffs.
The most likely source of clarity? A lawsuit. If an employee were to charge their employer with a labor violation on the basis of the new NLRB decision regarding a severance agreement made in the past six months, the labor board would provide a ruling on whether recently laid-off workers will be grandfathered in.
While the NLRB’s decision may be intended to help employees, industry observers note there could be unintended consequences that may not work in workers’ favor.
Employers aren’t legally required to pay severance to employees. And they don’t always do so out of kindness or to maintain goodwill. Often, severance packages are offered specifically to secure a departing employee’s agreement to continue protecting the company’s interests. With employers no longer able to prohibit laid-off workers from publicly criticizing or divulging job information, employers may shrink the payout or opt out of offering severance entirely.
But with trade secret clauses and lawsuit waivers still on the table, employees are not without negotiating power. And with layoff rates reaching record highs, many will no doubt cheer this ruling, risks and all.
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