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.

Who’s Affected?

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.

Unintended Consequences

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.

Looking for more stories like this? Check out On the Money — SoFi’s one-stop-shop for news, trends, and tips!

Check it out

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Advisor
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

TLS 1.2 Encrypted
Equal Housing Lender