The Clause That Buys Silence With the Severance Payment
Separation agreements routinely require the departing employee not to criticise the employer and not to discuss the terms. Labour regulators concluded that such clauses can themselves be unlawful.
What a Separation Agreement Buys
An employer paying severance beyond any contractual entitlement is buying something, and what it buys is a release of claims: the employee agrees not to sue over the employment or its termination.
That exchange is ordinary and sensible. The employer converts an uncertain future liability into a defined payment, and the employee receives money they were not otherwise owed.
Agreements typically contain further provisions, and those are where the difficulty is.
| Provision | Purpose |
|---|---|
| Release of claims | Ends litigation risk |
| Confidentiality of terms | Prevents comparison among employees |
| Non disparagement | Prevents criticism of the employer |
| Cooperation clause | Requires assistance in future proceedings |
| Non compete or non solicit | Restricts future employment |
Buying a release of legal claims and buying silence about how the company treats people are different transactions. The agreement presents them as one, and the second is what regulators objected to.
The Decision That Changed the Position
A labour board decision in 2023 held that offering a severance agreement containing broad non disparagement and confidentiality provisions can itself violate labour law, regardless of whether the employee signs.
The reasoning rests on statutory protection for concerted activity, meaning the right of employees to act together regarding terms and conditions of employment. That protection covers discussing pay, criticising working conditions publicly, and assisting colleagues or a union.
A clause prohibiting an employee from saying anything that could disparage the employer, or from disclosing the terms of their departure, restricts precisely those activities.
Critically, the violation was found in the offer. Presenting an agreement with such terms was held to be coercive even if declined, which is a considerably broader position than finding the clause unenforceable if signed.
Subsequent guidance clarified that narrowly drawn provisions can survive, and that the problem is breadth rather than the concept.
What Remains Permissible
The distinction that emerged is between protecting legitimate interests and suppressing protected activity.
Provisions protecting genuine trade secrets and confidential business information remain enforceable and are unaffected.
Provisions prohibiting defamatory statements, meaning knowingly false statements causing harm, are narrower than a general non disparagement clause and are generally acceptable.
Provisions restricting disclosure of the settlement amount specifically, as distinct from the underlying facts, occupy a middle position.
The clauses that fail are the sweeping ones prohibiting any statement that could be viewed as negative, to anyone, indefinitely.
The Other Constraints Already in Place
Several existing limits already applied and are worth knowing because they are frequently violated in drafting.
An agreement cannot prevent an employee from filing a charge with or participating in an investigation by a government agency, and provisions attempting to do so are unlawful.
Securities rules prohibit impeding communication with regulators about possible violations, and enforcement actions have been brought over agreements requiring employees to waive whistleblower awards or to notify the company before contacting regulators.
Legislation covering sexual harassment claims prohibits enforcing non disclosure provisions covering such allegations in certain circumstances, following state laws enacted after several prominent cases.
The Age Discrimination Requirements
A separate framework applies to releasing age discrimination claims, requiring specific formalities: written notice advising the employee to consult a lawyer, a defined period to consider the agreement, and a revocation period after signing.
Where a group is being terminated, the employer must also disclose the job titles and ages of those selected and those not selected, which permits an employee to assess whether the selection had a pattern.
That disclosure requirement is unusually useful and is frequently the most informative document in a redundancy process.
What an Employee Should Actually Do
Read what is being released, which is frequently broader than claims arising from the termination.
Check whether the agreement purports to prevent contacting a regulator, which is unlawful and indicates the document was not carefully drafted.
Note the consideration period and revocation right where age claims are involved, since those are statutory and cannot be shortened.
And recognise that severance terms are frequently negotiable, particularly the non disparagement scope and any restriction on future employment, because the employer wants the release and the release is the part it cannot obtain elsewhere.
The Bottom Line
A severance agreement legitimately buys a release of legal claims and has routinely been used to buy silence as well, which labour regulators concluded can be unlawful in itself. Narrow provisions protecting confidential information and prohibiting knowingly false statements survive; sweeping clauses prohibiting any criticism do not. The provisions purporting to restrict contact with government agencies have never been enforceable and continue to appear in agreements, which tells you how carefully most of them are drafted.