Could it be time for a review of your employee severance agreements? Right now Twitter’s experiencing major pitfalls from having them, thanks to a class action lawsuit accusing it of violating its own severance policy. Laid-off workers are claiming the company’s severance agreement plan is a benefit protected under the Employee Retirement Income Security Act.
The complaint, filed by Twitter’s former employee benefits program coordinator, says the social media giant failed to pay at least $500 million in promised severance pay to thousands of ex-employees, who were laid off after Elon Musk bought the company last year.
Twitter says it paid the former employees in full. But according to the lawsuit, those workers have been paid anywhere from $0 to one month of severance pay.
The severance agreement plan that the company had in place since 2019 stipulates that most workers receive two months’ base pay, plus one week of pay for each full year of service, if they are laid off, the lawsuit said.
Also, the lawsuit alleges that the company gave employees no notice of any pending changes to the severance agreement and that Musk told those affected by mass layoffs that they would continue to receive benefits under the plan.
Some senior Twitter employees who were let go are also claiming they’re owed bonuses, a cash contribution for health insurance and three to six months of outplacement services.
Regardless of the decision on this case, it sounds like it’ll be one expensive legal battle.
NLRB’s stance on severance agreements
Any agreement that involves providing a benefit to an employee in exchange for releasing an employer from future litigation liability should be read over by someone well-versed in employment law, especially after the National Labor Relations Board (NLRB) ruled that non-disparagement and confidentiality provisions in severance agreements can be a violation of employees’ rights.
While severance agreements have proven to be effective for preventing harmful public remarks by former employees, as well as protecting proprietary and trade secret information, they must be worded carefully.
After reportedly fielding numerous questions about the February 21 decision – which retroactively applies even to already-signed severance agreements – NLRB General Counsel Jennifer Abruzzo issued a memorandum which states that a severance agreement is in violation of Section 7 of the National Labor Relations Act (NLRA) if it:
- has an “overly broad” non-disparagement clause or provision
- has an “overly broad” confidentiality clause
- requires an employee to waive the right to file an unfair labor practices complaint, help others to file an unfair labor practices complaint or assist the NLRB with an investigation, or
- limits an employee’s right to communicate with the NLRB, their union, judicial or legislative forums, the media or “other third parties” regarding employment terms and conditions.
How NLRA compliant are you?
When it comes to tailoring confidentiality and non-disparagement clauses in a severance agreement, you’ll need to assess, on a case-by-case basis, whether individuals are covered under the NLRA. It’s important to keep in mind that the NLRB memo takes the position that NLRA protections may also apply to managers or supervisors in some circumstances (such as being fired for refusing to commit an unfair labor practice).
And because of how vague the definition of “overly broad” is, now may be the time to run any employee severance agreement that you have in place by your legal team to read it over and address any potential NLRA compliance risks.
For example, a confidentiality clause that restricts the sharing of trade secrets for a reasonable period of time (e.g., not forever) based on legitimate business justifications that can be proven in court is OK, but a clause that forbids discharged employees from talking about wages, hours, terms or condition of employment, or the terms of a severance agreement is illegal.
Also, the only non-disparagement clause that’s considered legal is one that restricts “unlawfully defamatory” statements by the employee about the employer (it’s a good idea to clarify what that means).
All severance agreements should include a statement that nothing in them is an attempt to stop the employee from engaging in activities protected by the NLRA.
If anything in your employee severance agreements needs to be revised, don’t forget to update your employee handbook. It’s also important to ensure that the revised procedures are carried out, so you don’t have a Twitter-like mess on your hands.
Meanwhile, there’s a possibility the board’s decision will be scrutinized by federal courts down the line.
Are there state or local laws to consider?
Severance agreements also need to be written with potentially applicable state and/or local laws in mind, which could impact the termination process more broadly.
For example, there are various state laws regarding an employer’s deadline for delivering a final paycheck to an employee. State law considerations may also come into play with waivers of claims for workers’ compensation and unemployment benefits.