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Is the non-disclosure/non-disparagement agreement still valid?


johntepper
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A terminating employee wanted to cash out all of his company stock retirement to an IRA.

After the employee’s request, the company changed the rules on distribution of company stock. This change did not allow for the complete liquidation of a person’s company stock.

The terminating employee protested stating that what the company was doing was illegal.

The company decided to allow the terminating employee to cash out all of his company stock only if he would sign a non-disclosure/non-disparagement agreement.

The employee signed this agreement and cashed out his company stock.

The company was later investigated by the DOL. The findings of DOL state that what the company tried to do was illegal.

The only reason the ex-employee signed this agreement was to get his retirement funds that were illegally being held by the company.

There would have been no non-disclosure/non-disparagement agreement if the company did not illegally stop the liquidation of the ex-employee’s retirement account.

Is the non-disclosure/non-disparagement agreement still valid?

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agreed. Hindsight is 20/20 and I would have called the DOL first (because yes, it is illegal for them to do what they did of changing the distribution options) or an attorney before signing. I too would get some legal advice from an attorney who can know all the details and who can read the agreement. Sometimes those agreements can be very different based on state laws. Sometimes they are only enforce-able for certain reasons and can't be coerced, which it sounds like it might have been.

only you and an attorney can decide if you want to try to break it. Even if it is not legal, the company could still waste your time/efforts in court just to make your life difficult. So you might have to decide if it is truly worth it to you to be able to say something negative to any audience where it might get back to them.

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No where in the original post is the word "plan". Is this an ESOP?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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I would defer to legal counsel.

IMHO, it should be illegal to apply changes retroactively and it should also be illegal to coerce the employee into signing and it also could amount to extortion. In any case, usually any agreement signed under coercion or under duress is challengeable and may be voidable, but this depends on the facts and circumstances and the laws of the governing jurisdiction.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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  • 4 weeks later...

Whether the Non disclosure agreement violated ERISA rules for distributing plan benefits is a separate issue from the contractual obligation of the employee not to disparage or disclose information about the company in return for receiving the stock. Q for OP is whether he has the financial resources to defend himself against a lawsuit filed by his employer if he violates the terms of the agreement.

mjb

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To original poster, please confirm: is this an ERISA plan?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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2 cents:

If he has not suffered any injury why would he sue?

He could ask for a declaratory judgment that the non disclosure agreement is not enforceable but that would be very expensive with no guarantee that a court would find in his favor.

If he lost he could be required to pay employers legal fees. Need to read the non dis agreement.

mjb

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David, yes this plan is an ESOP retirement plan.

The employer has already filed a suit for a blog that provided information on the ESOP's questionable tactics.

Was the blog post from the person coerced into signing a non-disclosure/non-disparagement agreement? Is that the person being sued? Disavowing the agreement as coerced (it seems to this non-lawyer) ought to be the first step for that person if they are now cast as a defendant. That and to seek legal fees from the former employer.

Always check with your actuary first!

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Can the employee afford the cost of defending their right to blog about the ESOP plan requiring non disclosure and non disparagement? I don't see this as a winning case for the employee.

So what is the employee supposed to do? Pay off the former employer enough to make the lawsuit go away? Who has the deep pockets here?

Apparently the employee DID post an adverse blog about the ESOP and the former employer IS suing them (presumably for sizable damages). Unless the former employer is looking for an apology and little or nothing else, isn't the employee pretty much forced to defend himself? If so, what better way than to assert that the agreement was coerced and thus invalid?

Always check with your actuary first!

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Given the prior behavior of the former employer (which as described above sounds egregious to this non-lawyer), it does not seem likely that any offer short of financial ruin for the employee would be accepted.

Is it not true that if the case does go to trial and the former employer wins big, if the employee declares bankruptcy, the money in the IRA is unreachable?

And if the employee prevails, it is not unlikely (especially given the prior behavior of the former employer) that the former employer will be paying the employee's lawyer bills!

Always check with your actuary first!

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