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The Basics of Non-Disparagement Clauses

Up until several years ago, we consistently argued that including a so-called “non-disparagement” clause in an executive employment agreement or an executive’s separation and severance agreement was not only a potential breeding ground for further controversy between the parties, but was unnecessary as well.

After all, as executive employment attorneys, we caution all of our clients that it will not serve their interests to say anything negative about their employers, whether before or after they have signed agreements. And, on the employer’s side, modern HR practice is to refuse to disclose any details about any current or former employee other than the employee’s title and dates of employment (and usually, in the case of an ex-employee looking for a new position, the employer will not volunteer the amount of the ex-employee’s compensation, but will confirm or deny the truthfulness of any salary information the ex-employee has provided to the prospective new employer).

Thus, if neither executive nor employer had any incentive to say something derogatory about the other, why was there any need for a contractual clause which mandated the same result — “you shall not say anything disparaging about the Company or its officers, directors, executives, employees, etc.” — while adding specific penalties for violating the “non-disparagement” prohibition?

Well . . . just because. Attorneys and in-house employment counsel for large companies decided that they wanted this type of clause in all executive agreements, both in employment contracts upon hiring, as well as in agreements documenting the separation of, and severance paid to, departing executives.

Accordingly, it became an unwinnable argument, and so vanished from most negotiations. As an analogy, the sort of “good conduct” or “morals” clause, which used to appear largely in the contracts of celebrities endorsing products, is now becoming far more common in executive employment (and other personal services) agreements following the recent revelations of widespread sexual misconduct among powerful men in a variety of different industries.

So, given the inevitability of “non-disparagement” clauses showing up in executive agreements, how does an executive compensation attorney respond?

1. We educate our executive clients as to what it means and how seriously they must observe its strictures. Any pent-up dislike of the employer or other executives at the company must continue to be kept to oneself or one’s spouse or shrink.

2. On the other hand, a non-disparagement clause must “carve out” an exception preserving the right of an executive or any ex-employee to give truthful testimony — even if negative or damaging to the employer — in response to lawful legal process when prompted by a subpoena seeking testimony as part of an investigation or lawsuit. Moreover, if we determine that a specific executive has been a legitimate “whistleblower,” we take that fact into account in the drafting of such a clause.

3. Most importantly, we often are able to negotiate a reciprocal non-disparagement obligation on the part of the employer, so that there is an additional legal barrier to any inclination the employer might have to say “bad things” about the employee. Most companies are willing to make this non-disparagement obligation reciprocal, at least to the extent of binding anyone in HR who might speak about the ex-employee on behalf of the Company. But some companies respond that they cannot be held accountable for what every one of the Company’s employees, who often number in the hundreds or even thousands, might say about our executive client. In these instances, we can usually ascertain, by questioning our client, the names of one or two executives or co-workers our client is most concerned might make negative or derogatory statements. Company counsel are often willing to include the names of these few individuals in agreements to bind them to the Company’s own non-disparagement obligation, since counsel can specifically instruct these individuals that they cannot “bad-mouth” our client without serious repercussions.

The underlying message here is that every single clause in an executive employment agreement is significant. It is the job of the executive compensation attorney to analyze the meaning, context and implications of each clause and how it might impact our executive client, rather than to dismiss it as so-called “boilerplate” or “legalese” unworthy of attention.

About the Author

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George Birnbaum

Since 1980, sophisticated business people have relied on George to apply the meticulous preparation, attention to detail, and devotion to his clients he learned from fabled trial lawyer Louis Nizer. A graduate of Harvard College and Harvard Law School, George has over 35 years of distinguished deal-making, litigation, mediation and arbitration experience which he has used to negotiate high-stakes agreements for senior executives and select business clients throughout the United States.