Well, it’s official: you’ve just signed your severance agreement. On the upside, you probably received something you really wanted from it, like a cash payment or an agreement that you’ll get a neutral reference for prospective employers.
But do you fully understand what your former employer expects of you in return for those severance benefits? In particular, you should be aware of whether you’ve agreed to nondisclosure, confidentiality, nonsolicitation, or nondisparagement provisions, as these govern your behavior once the agreement goes into effect. These clauses tend to limit what you’re allowed to do in a professional capacity, who you talk to about your severance, and what you say about your former employer. The consequences for violating such clauses could be as serious as a disgorgement of severance payments—meaning your former employer would not only stop paying you, but your employer could also demand that you repay anything you’d already received under the agreement.
What exactly are you obligated to do (or not do) under those types of clauses? Let’s look at them in turn so that you can keep your conduct in line with your agreement.
Nondisclosure
In all likelihood, you have a nondisclosure clause, in which you agree to keep secret both the fact that you have a severance agreement as well as its specific terms and conditions. Your former employer wants this to stay secret, since knowledge of your agreement may undermine its bargaining position with regard to other employees. This clause broadly prohibits you from disclosing information about your severance, but often you’ll find that it allows you to share information with your spouse, your attorney, your tax advisor, or another financial agent. Usually any information that you can share must be accompanied by the caveat that the agreement is confidential.
This is a two-way street. You can also negotiate for a clause that limits who within the employer’s organization is privy to the terms and conditions of your agreement, perhaps to those in certain positions such as upper management or those in limited departments such as human resources. These provisions can be vague, but if this protection is especially important to you, you may want to negotiate a provision that Tom at reception or Judy in the mailroom does not know the pay structure of your severance agreement or other personal details.
Note that what some agreements refer to as “nondisclosure” others may call “confidentiality.” When used in this sense, confidentiality provisions address this specific agreement not to disclose the agreement. More often, though, employers discuss confidentiality in regards to all information that a former employee has obtained through an employment relationship. Let’s turn to that clause.
Confidentiality
In its broadest form, a confidentiality clause prohibits former employees from disclosing business or trade secrets with people who do not already have access to that information. Furthermore, confidentiality provisions tend to ask that you do not “make use” of any secret information you obtained while working for your former employer. For instance, if you were a salesperson relying on a company-generated customer list to make sales, then you definitely should not use that list to create your own customer base.
Sometimes the employer will cover related requests and prohibitions in a clause called “return of property” or “property and documents.” There, the employer will ask you to return any documents or other property in your possession that hold confidential or proprietary information so that you cannot make use of or disclose that information to any third party.
Nonsolicitation
A nonsolicitation clause generally prohibits a former employee from approaching current employees with new employment opportunities. So, this is not the time to rally other employees—Jerry Maguire style—to come join your new business venture that just so happens to compete in the same industry and market as your former employer. Sometimes, this clause also prohibits former employees from soliciting clients and customers or engaging vendors in a way that alters their business relationships with the former employer.
Nonsolicitation clauses may include a time limit defining how long the employer expects you to refrain from approaching its employees, customers, and vendors. Courts typically view 12 months as the upper limit on prohibiting such conduct, but this depends on your specific jurisdiction.
[Mutual] Nondisparagement
By including a nondisparagement provision, your former employer means to prevent you from a broad range of actions including, but not limited to, making false, defamatory, disparaging, or negative comments, diminishing the organization’s goodwill or reputation, or interfering with the organization’s business affairs. Remember that the severance agreement signifies the end of your employment relationship. As such, you may be tempted afterward to discuss every critical opinion you have ever held about the organization, from the quality of its services to how it handles workplace complaints. If you have a nondisparagement provision in your agreement, keep those thoughts to yourself. Do note that nondisparagement provisions often contain an exception if an employee is asked to testify under oath or respond to government inquiries.
Can your former employer disparage you? Usually, when the employer drafts a severance agreement, this clause just addresses your disparagement of the employer. But you can and should negotiate for mutual nondisparagement. The way that an employer talks about you could easily harm your future employment prospects. Therefore, you’d be wise to protect yourself from any negative comments that your employer may make about you by either negotiating for mutual nondisparagement or including a neutral reference provision in your agreement.
Summing It Up
It is critical that you understand what you can and can’t do under the terms of your severance agreement. Breaching those terms—even unintentionally—could result in harsh consequences, like having to return your severance payments. Expect that the first severance agreement you are offered will be extremely employer friendly. So, you’ll either have to advocate for what you want or find an attorney who specializes in employment law to help you get the agreement to a place where you feel comfortable signing it.
For more detailed guidance on nondisclosure and other conduct-limiting provisions, please check out our blog “Nondisclosure Agreements: What Are They, and How Do They Work in Sexual Harassment Cases?”
We’d love to talk with you about your severance agreement, whether you’ve already signed it or you’re still considering it. Please contact our office to talk with one of our employment specialists.
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