Employment Severance Agreements get Very Complicated
In recent years it’s been more likely than not that a separating employee (whether voluntary or involuntary) will receive a severance agreement from his or her employer, which contains a general release of legal claims. The purpose of these agreements is to (1) provide some severance pay for the departing employee; and (2) in exchange, wrap up all possible legal claims that could exist between the employer and the employee. In reality, of course, most of the potential claims that are waived in these agreements are against the employer. Thus, the employee gives up the right to sue under various theories in exchange for severance pay.
The federal government, and in particular the administrative agencies, have been chipping away at this practice since at least 2004. Currently, the EEOC and the US Department of Labor take the position that certain claims cannot legally be waived, such as the right to file a Title VII discrimination suit, or the right to participate in a wage and hour investigation. In addition, there are several areas of law where rights explicitly cannot be waived, such as ERISA retirement claims (such as claims based on 401(k) accounts), workers’ compensation claims, etc. Most severance agreements take these areas into account, and close out claims against the employer “to the maximum extent permitted by law.”
Last week, the National Labor Relations Board added another wrinkle to the analysis. The Labor Board, which regulates traditional employer/union relations in the private sector, has famous for being one of the most political agencies in the government; NLRB decisions tend to be pro-union or pro-employer, depending on the party of the current President. The current “Biden Board” has been aggressive in pushing employee-friendly policies. In doing so, it is regulating areas that extend to non-union workplaces (the National Labor Relations Act protects non-union employees in certain circumstances).
The Board’s recent McLaren Macomb decision found that “non-disparagement” clauses in severance agreements presumptively violate the Labor Act, because they regulate an employee’s right to criticize his or her employer. These types of clauses are routine, and generally are uncontroversial (the Parties to the agreement simply agree not to criticize one another). Now, employees who are presented with these agreements could conceivably file Unfair Labor Practice charges against their employers, even if they sign the agreement and accept the severance pay. Whether the Labor Board could actually penalize an employer for this type of violation (as opposed to simply telling the employer not to do it again) is unclear at this point. Employers and employees should be aware, however, that the Labor Board has recently expanded its authority to impose monetary penalties against employers for violations of the Labor Laws. Obviously, these agreements should be closely reviewed while this area of law is unsettled.
Do you have a legal question regarding severance agreements or an employment related matter? Give Parker Daniels Kibort a call at 612.355.4100.
