No Rehire No Nos
Julie R. Pugh & Lee P. Geiger
In many settlement and severance agreements, we often ask our clients if they want to include a “no rehire clause.” The provision does not mean that the employee can’t apply, it just says that the company has no obligation to reemploy the person once the two parties have a contractual parting of the ways (hence, we often refer to it as a “no rehire” provision). We usually recommend including this fairly standard provision when a departing employee had performance or behavioral issues.
When a former employee does reapply, and had previously signed a severance agreement with a “no rehire” clause, the company can still hire the former employee. Included in a standard severance agreement is usually a “waiver” clause that says failure to enforce one or more provision does not waive the enforceability of the remaining provisions. The employee would not be required to return any of the consideration, or severance payment, previously received. In a case where the employer wants to rehire an employee who signed a no rehire clause, the company should follow its normal recruitment processes, and then in the offer letter document the waiver of the prior provision. The paper trail is important!
However, employers should always check local laws when including such provisions. The great state of California just introduced Assembly Bill No. 749 that would prohibit employers from having such no rehire provision in a severance or settlement agreement. This law is expected to go into effect on January 1, 2020.
Employers are well advised to check with their competent employment counsel before entering into contractual agreements with current or former employees. Form agreements can become quickly outdated, so make sure you are using your attorney wisely!