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johntepper

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

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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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This is a legally and factually complex question that cannot be adequately addressed in this forum. Maybe it is, maybe it is not. If the individual has a compelling reason to disclose/disparage and is afraid of the contract, then personal legal advice is needed.

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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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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.

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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.

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Would it make any sense for the former employee to go into court, prior to any apparent violation of the non-disclosure/non-disparagement agreement, and seek to have it nullified as having been coerced?

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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.

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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.

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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.

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Seems like we had a long thread about something very similar to whether the distribution process in an ESOP could be changed. It was in the last year or two.

I wonder if this is the same people involved in that thread.

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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.

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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?

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In a case like this the side with the most lawyers wins. Question to the employee is just how much justice can he afford?

Optimal solution for the employee is to get the best settlement he can because it will be cheaper than the cost of a good lawyer.

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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!

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Employee will declare bankruptcy before trial because he will run out of money to pay his lawyers or wind up representing himself at trial. I have seen it happen.

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