Federal Law Alert: Time's Up to Review Employee NDAs
Non Disclosure Agreement

On November 16, 2022, in a 315-109 vote, the U.S. House of Representatives passed the bipartisan “Speak Out Act,” previously passed by a unanimous Senate on September 29. President Joe Biden is anticipated to sign it, as the White House indicated strong support in a statement about the Speak Out Act on November 14, 2022.

Many employees are required to sign employment agreements that include nondisclosure and nondisparagement clauses at the outset of employment. Nondisclosure agreements (“NDAs”) are often intended to protect confidential and proprietary business information, or trade secrets. Nondisparagement clauses are intended to ensure that employees (even disgruntled ones) will not publicly bad-mouth the company. Under the Speak Out Act, nondisclosure and nondisparagement agreements (or clauses in broader agreements) entered into before a dispute arises (e.g., on the first day of employment) will be deemed unenforceable as applied to sexual assault and sexual harassment disputes, so that employees may reveal and discuss their experiences with sexual harassment or assault without fear of consequences, when they otherwise would be obligated to remain silent.

The Speak Out Act is limited in scope, in that it only applies to sexual assault and sexual harassment disputes.   It does not apply to NDA provisions regarding trade secrets or business information, NDAs signed in connection with a settlement or as part of a severance agreement, or complaints other than sexual harassment and assault. It does not apply to nondisparagement agreements that relate to other issues.  The Act also does not clearly define what counts as a “dispute,” which could refer only to a lawsuit, but also could be interpreted to include a claim to the CCHRO or EEOC, or even a report to the employer’s HR department.

A similar bill signed by President Biden on March 3, 2022 – the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 – invalidated mandatory arbitration agreements signed before a dispute that preclude a party from filing a lawsuit in court involving sexual assault or sexual harassment. Both bills were proposed and passed in response to the #MeToo movement, where NDAs and forced arbitration clauses took center stage for concealing years of sexual misconduct.

At least 17 states have already imposed restrictions on NDAs, but they vary in scope. In Connecticut’s 2019 Legislative Session, lawmakers proposed (but ultimately did not pass) a bill almost identical to the Speak Out Act, supported by the CT-ACLU and the National Women’s Law Center. Since 2018, New York has prohibited employers from requiring a nondisclosure provision in any settlement agreement resolving claims of sexual harassment unless the condition of confidentiality is the complainant’s preference.

California has the Silenced No More Act, which took effect January 1, 2022, banning confidentiality provisions in settlement agreements that restrict disclosure of the facts underlying harassment, discrimination, and retaliation claims, unless the complainant desires confidentiality. Washington passed its own Silenced No More Act, which took effect June 9, 2022 – a measure more comprehensive than the Speak Out Act –  prohibiting “nondisclosure and nondisparagement provisions that prevent an employee or contractor from disclosing or discussing conduct the individual reasonably believes to be illegal acts of discrimination, harassment, retaliation, wage and hour violations, sexual assault, or other conduct recognized as being against a clear mandate of public policy.” Notably, the Washington law covers settlement agreements, but still allows companies to prohibit disclosure of the settlement amount paid, or to protect information that does not involve illegal acts. Oregon expressly allows individuals to sue employers that violate state confidentiality laws. Maine and Vermont also have such laws, as does Hawaii.

While the Speak Out Act applies to workplace sexual assault and harassment disputes, the obvious next step for lawmakers and advocacy groups at the federal level will be to target the application of NDAs or nondisparagement clauses to other types of workplace discrimination and labor law violations. The White House statement on the Speak Out Act concluded, “the Administration looks forward to continuing to work with the Congress to advance broader legislation that addresses the range of issues implicated in NDAs and nondisparagement clauses, including those related to discrimination on the basis of race, unfair labor practices, and other violations.”

As this area of law is quickly evolving, employers should review and update their existing employment agreements and ensure they do not violate changing state and Federal law. Using boilerplate agreements or old provisions copied-and-pasted could be a source of potential exposure. Employers can also make proactive changes to their employee handbooks and implement clear workplace procedures to reduce the risk of claims in the first place, and to ensure that any claims that do arise in the workplace are handled fairly and effectively.  Attorneys in Pullman & Comley’s Labor & Employment practice are available to assist.

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