In a time of uncertainty regarding the status of noncompete agreements and confidentiality provisions, employers and employees alike may face confusion and concern when it comes to employment separation.
In her latest blog, KingSpry’s Employment Law Chair, Avery E. Smith outlines must-have provisions and discusses how employers can offer mutually-agreeable and legally-enforceable severance agreements to their separating employees.
What are Severance Agreements?
A severance agreement or settlement agreement and release is an agreement made between an employer and employee at the time of their separation or termination.
Employers utilize severance agreements to provide consideration, such as salary or continued health coverage, in exchange for the separating employee’s release of all legal claims against them.
Though employees in Pennsylvania are considered to be “at will”, meaning they can be fired and/or resigned at any time, there are circumstances where employment ceases and employers offer severance benefits in exchange for employees waiving certain rights.
What Provisions Should be Implemented?
Though every severance agreement has the potential to differ, the following provisions are a guide for what employers and employees should include:
- Effective date of the agreement and of employee’s separation.
- Period and specific amount of severance pay and/or continued health coverage.
- Period and specific amount of additional consideration.
- Specific waivers of rights and releases.
- Terms of any effective Non-Disclosure, Non-Competition, etc. Agreements in the initial employment contract.
- Employee/Employer acknowledgements and representations.
- Governing law.
- Modification of the agreement.
- Date by which an agreement shall be reached by both parties.
Recap of NLRB’s Decision in McLaren Macomb
On February 21, 2023, in the case of McLaren Macomb, 372 NLRB No. 58 (2023), the National Labor Relations Board (the “NLRB”) ruled that confidentiality and nondisparagement agreements included in employment severance agreements may be deemed unlawful under the National Labor Relations Act (the “NLRA”).
The severance agreements contained confidentiality and nondisparagement provisions, which prohibited the employees from making statements that might harm the image of the employer. The agreements further prohibited the employees from discussing the terms of their severance agreements.
The NLRB held that the “mere proffer” of an agreement that “unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights” violates the NLRA. McLaren held that confidentiality and nondisparagement provisions have the potential to hinder an employees’ exercise of NLRA rights.
For more information about the decision in McLaren, check out our previous blog: According to NLRB, Confidentiality and Nondisparagement Provisions in Severance Agreements May Be Unlawful
McLaren’s Caveat
Though the NLRB’s decision provides practical guidance for employers separating with any employee, it legally only applies to nonmanagerial employees with Section 7 rights under the NRLA. Therefore, McLaren does not apply to a manager, supervisor, or an employee with the authority to “hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, adjust their grievances, or effectively to recommend such action.”
Moving Forward Post-McLaren
There is pressure on employers to ensure that severance agreement offered to their separating employees do not contain unlawful conditions.
Though difficult to navigate the maze of employment and severance provisions, employers can follow several principles to aid in the drafting and offering of severance agreements.
1. Be Specific.
In McLaren, the severance agreement at issue was overly broad and was deemed to interfere with, retrain and/or coerce the employees’ exercise of Section 7 rights.
The NLRB has confirmed that lawful severance and confidentiality agreements may continue to be offered, maintained, and enforced if they are narrowly-tailored. Employers should not only specifically restrict the disclosure of proprietary or trade secret information but identify the time limits of the restriction based on legitimate business reasons.
2. Seek Legal Approval Prior to Offering.
Pursuant to McLaren, it is irrelevant whether the employee signs the severance agreement or not, as the mere proffer itself has the potential to coerce an employee to accept unlawful severance benefits.
Employers should receive legal guidance and approval prior to offering severance agreements if concerns exist regarding its provisions.
3. Communicate and Cooperate with Employees.
Though times leading up to an employee’s severance may not always be positive, the easiest way to reach an amicable and mutual severance agreement is to allow for open communication between both parties.
To avoid overly broad provisions, employers should discuss with their employee or their employee’s legal counsel the implementation of specific provisions. This not only ensures that your employee understands the severance agreement, but also allows for effective negotiation, when disagreements arise.
4. Maintain Organized Records of Employee Severance
NLRB cases are presumed to be applied retroactively and McLaren, therefore, has a retroactive application. Due to this retroactive nature, it is important that employers retain a record of employee severance agreements to ensure they have been and remain compliant.
Maintaining a record of employee severance allows employers to assess their practices and anticipate potential action against them, should complications arise.
Negotiations
Employers must consider that a separating employee has no obligation to accept their offer of severance benefits.
Employees may disagree with the terms of their agreement, such as amount of pay, and exercise their ability to negotiate for more favorable benefits. These negotiations do not need to be confrontational nor adverse, as both parties often want the same thing—to be separated.
What Employers and Employees Should Keep In Mind
When it comes time to execute a severance agreement, employers and employees should be both cautious and considerate. It is imperative that both parties understand their obligations to ensure their severance agreement is enforceable under governing Federal and Pennsylvania Law.
If you have questions about the enforceability of severance agreements or negotiations, an Employment Law attorney at KingSpry is prepared to assist you.
