Rumor has it that the demand for Silicon Valley engineers is so great that sometimes, when a company gets bought out, the new owners want to keep only the engineers--everybody else gets "laid off." However, they also don't want anyone to know they've bought the company, because they don't want recruiters pouncing on their newly-acquired engineers. So the acquiring company prohibits its engineers from updating their LinkedIn profiles, and also tells the people who are being laid off that, if they want their severance, they can't update their LinkedIn profiles either.
This is, assuredly, dumb on the part of the acquiring company. We know that engineers are in demand in the Valley. But if you have so little to offer your employees that you have to manipulate their LinkedIn profiles in order to keep them, it's a sign that you are the problem. When you make a rule like this, it's like announcing, "We know we stink! And we're going to treat you worse than our competitors will treat you!" This will make your engineers more likely to look for a job than they would otherwise.
And headhunters? They are smart. (Well, some of them are dumb as rocks, but they have connections.) Do you really think they won't find out that Company A bought out company B, even without anybody changing their LinkedIn profile? Of course they will. You may be able to delay it for a few days, but word travels quickly.
But, is this legal? Almost assuredly, says Employment Attorney Bryan Cavanaugh, especially for the already terminated employees. There is no federal law that prohibits employers from restricting speech about the company as a condition affecting a severance payment. If a former employee refuses to sign the paperwork for severance (called a General Release) then the company cannot prevent them from changing their LinkedIn profile.
But, what about current employees? The only concern would be that the National Labor Relations Act guarantees the rights of the engineers (except for those that are supervisors) to self organize, to form and join labor unions, to bargain collectively, and to engage in protected concerted activity, which involves discusses, criticizing, and trying to improve wages, benefits, hours, or other workplace conditions. "Nothing in the employer's directive to not update LinkedIn profiles would explicitly contradict any of these rights," says Cavanaugh.
However, before these employers cackle evilly and start imposing this, Cavanaugh has a warning: "An employee who is told not to publicize the identity of the new ownership may very well understand that he or she is also not to talk about the new ownership at all. As such, it would discourage employee from exercising their rights and thereby constitute an unfair labor practice." And if the courts agreed that this policy constituted a "chilling effect" then your business could be in a heck of a lot of trouble.
Businesses that attempt to control their current and former employees like this are asking for trouble. They would be far better off if they simply provided better pay, benefits and working environments than their competitors. When it comes to employee retention, if you have to swear the employees to secrecy, you're doing something wrong.