New law shapes severance agreements, settlements in Alabama - Birmingham Business Journal - Birmingham Business Journal
A new law that could protect small businesses has gone into effect in Alabama.
Gov. Kay Ivey signed the Alabama Non-Disparagement Obligations (NDO) Act into law last year. The AL NDO Act, which took effect Jan. 1, lays out a structure for non-disparagement agreements to follow, potentially offering more protection for businesses concerned about what a former employee or business partner may say about them and presenting yet another reason one might want to think twice before sending off an angry tweet about an old boss.
Christine Tenley, a McGlinchey attorney licensed in Alabama, Georgia and Louisiana who handles a wide variety of commercial and employment litigation, said she thinks the law may be especially helpful for small businesses.
“My impression upon reading the new statute is that it will be a highly effective tool for small business owners and others with limited financial means to combat derogatory and disparaging information on social media that can impact and disrupt their businesses,” she said.
Under the AL NDO Act, parties who violate non-disparagement agreements, namely by making disparaging statements about opposing parties, risk facing legal recourse. The following elements must be present: a contract between the relevant parties prohibiting one or more of them from disparaging each other, and a disparaging statement is made by a party obligated not to do so that either results in identifiable damage to the opposite party, or the terms of the contract result in a liquidated damages provision, meaning the parties agreed to a dollar sum that must be paid as compensation for a breach of contract. Plaintiffs may be entitled to reasonable attorney’s fees and costs if provided for in their contract.
Non-disparagement clauses, common in severance and settlement agreements, are designed to prevent relevant parties from making reputation-damaging statements about each other.
“The real purpose of the new law is to bring more structure and certainty to the parties’ obligations under those clauses and actions for breach of those clauses,” Adam Israel, a partner with Balch & Bingham LLP, told the BBJ. Israel was also a member of the Alabama Law Institute committee that drafted the law.
Disparaging statements that could lead to a cause for action under the new law include accusations of criminal or scandalous activity, statements that detract from a person or business’s reputation or products, raise doubts about their honesty or have other disparaging effects. Such statements can be spoken, posted on the internet, emailed or otherwise communicated.
“Most states just rely on the torts of defamation and then breach of contract for a non-disparagement clause. And a lot of times it’s difficult to prove those claims, and it’s expensive to prove those claims. So potentially, with this statute, it will give that extra layer of protection for folks, provided they comply with all the requirements,” Tenley said.
For all the tools it offers individuals or businesses on the receiving end of disparaging statements to seek remedy, the law also requires some protections for circumstances in which individuals may have had no choice but to make such statements.
“Specifically, it requires the inclusion of certain safe harbor language, which advises a party that they may make statements in good faith for certain purposes listed in the statute without being in violation of a non-disparagement provision,” Israel explained. “If a non-disparagement provision covered by the new law does not include that required language, the provision will not be enforceable.”
Defendants in cases involving breach of contract under the AL NDO Act may offer certain affirmative defenses, according to the law’s text, if the injurious statement was made in good faith or by mistake or if the injurious statement was retracted in such a way as to eliminate or reduce harm to the plaintiff.
The law only applies to agreements that include non-disparagement clauses. Those wishing to waive the law’s applicability may, but such a non-disparagement agreement would need to include an explicit statement that the parties involved wish to do so.
“It brings more certainty to this area of the law,” Israel said. “It brings more certainty to what can and cannot be said and what kinds of provisions are and are not enforceable.”
source: https://www.bizjournals.com/birmingham/news/2022/01/07/new-law-shapes-severance-agreements-settlements.html
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