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Severance Agreements – good for a departing employee and the company, but legal risks abound

The severance agreement – a contract between a company and a departing employee – is often a desirable tool when an employee doesn’t work out and will be released by the company for some reason.

It is often the best possible world for both the departing employee and the company. The company says, “We’re sorry this didn’t work out. We’ll provide some money to keep you going while you look for a job that suits your talents better. But in exchange for that money, you have to promise you won’t bad-mouth us, won’t tell people the terms of this agreement, and won’t file some kind of claim against us. We won’t talk about you either, so your reputation is intact.”

When the last thing the employee experiences is positive, like a fair severance payout, a “recency bias” kicks in and leaves at least a somewhat positive impression out the door. Both employer and employee are relieved of a great part of the disappointment of a failed relationship. Neither party is in litigation. Both parties can keep their reputations intact.

But if the NLRB thinks a severance agreement offer is over-broad and may restrict employees from reaching out to the NLRB with concerns, you may be facing a ULP from the Board for violation of NLRA section 7 rights.

On March 22,2023, NLRB General Counsel Jennifer Abruzzo (citing McLaren Macomb, 372 NLRB No. 58) issued a memo to all NLRB field offices advising that severance agreements violate the NLRA when they include broad waivers of employee rights under the Act.

“Lawful severance agreements may continue to be proffered, maintained, and enforced if they do not have overly broad provisions that affect the rights of employees to engage with one another to improve their lot as employees,” wrote Abruzzo. “…the future rights of employees as well as the rights of the public may not be waived in a way that precludes future exercise of Section 7 rights, including engaging in protected concerted activities and accessing the Agency.”

GC Abruzzo states that even the offer of a severance agreement constitutes an unlawful act when receipt of benefits hinges on the forfeiture of legal rights under the NLRA. For example, she states that the offer of such a severance agreement has a reasonable tendency to interfere with or restrain an employee’s rights to reach out to the NLRB for a possible ULP filing or engage in discussions of working conditions with other employees.

The Board will apply this position retroactively as well as into the future. Even disputes alleging violations of past agreements fall within the Board’s intended scope of enforcement.

So can employers still offer severance agreements without running afoul of the NLRB’s proclamations?

The answer is yes – but proposed agreements must be narrowly tailored to ensure that employee rights to access the NLRB and engage in legally protected activity under the NLRA are not compromised. So proceed with great care and sound legal advice. And you might not get all the bells and whistles in the agreement that you did in the past.

MARC associates address the rights of both companies and employees under the NLRA as a part of MARC’s management training program. Click on the Services tab on this webpage for more information.


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