The Fall of the NDA: Compliance and Litigation Following the Speak Out Act
In a notable victory for the #MeToo movement, President Biden recently signed the “Speak Out Act” into law. It became effective December 7, 2022.
This bipartisan legislation targets and effectively prohibits the use of pre-dispute nondisclosure agreements, which would cover claims of sexual harassment or assault in the workplace. The law only prohibits enforcement of pre-dispute agreements, which means employers can still utilize NDAs in post-dispute agreements, such as settlements.
Many states, like New York, have already passed laws restricting the use of NDA’s in settlement agreements, so depending on the state where you are located, this may not be a major change. But for employment attorneys and HR professionals, this should be a signal to review all new employment contracts. In a broader sense, you may have to revisit how your company responds to workplace sexual harassment and assault allegations now that it has become more difficult to quietly resolve.
Here’s what you need to know:
What does the Speak Out Act do, exactly?
Under the Act:
- Any agreement to keep the details of any future sexual harassment or assault dispute confidential is unenforceable. This applies to all employment contracts: past, present, or future.
- Any prospective nondisparagement clause that purports to limit an employee’s ability to speak out about sexual harassment or assault is also unenforceable.
- Trade secrets and proprietary information are explicitly protected under the law and employers may use NDAs to safeguard this information.
- States may continue to enforce laws that are more protective of an employee’s right to speak publicly about sexual assault and harassment.
Throughout the #MeToo era, NDAs have come under fire for preventing victims from speaking publicly but remain commonly used in hiring, promotion, and severance contracts. In fact, approximately one third of workers have signed broader agreements not to disparage their employers or disclose details of their employment.
Despite its seemingly clear purpose, the Act’s ambiguities are likely fodder for future court challenges. For instance, the law targets only “pre-dispute” agreements but does not define the term. This means courts may interpret a “dispute” to include a narrow set of actions (such as a formal complaint or even litigation) or broader swath (say an informal HR complaint).
Also, the law does not specify what a company must do to address existing employment agreements which may contain clauses that violate the new law. We would advise leaving those agreements in place, as trying to get new agreements signed again could be impossible. Just be aware that a requirement of an NDA could be unenforceable.
The Act also looks to other federal, tribal, or state law in defining the terms “sexual assault” and “sexual harassment. ” Notably, in 2020, the Supreme Court interpreted Title VII’s sex protections to include protection against discrimination based sexual orientation and gender identity. The scope of these definitions may be contended. And while the law does not prohibit the use of NDAs in other contexts, such racial bias or disability, discrimination claims are often intersectional and contain several allegations. For now, employers may be wise to interpret the Act broadly.
How does this compare to state law trends?
The federal law creates a floor, not a ceiling. More than a dozen states have already passed legislation limiting employee NDAs, including California and New York.
California: California has severely limited NDA enforcement for all forms of workplace harassment and discrimination. The state prohibits confidentiality agreements as a condition of employment that prevent an employee from disclosing most unlawful workplace conduct. And unlike the federal law, California’s law also bans confidentiality provisions in settlement agreements that prohibit an employee from discussing the underlying facts of the case. Agreements to protect the worker’s identity or safeguard the amount paid are permitted. Again, California law applies to all forms of harassment and discrimination, including sex, religion, color, national origin, disability, familial status, gender, age and others.
New York: The Empire State has similarly outlawed agreements that prevent the employee from disclosing the underlying facts and circumstances related to an employment discrimination claim. Like California, the legislation originally applied only to sex discrimination, but was expanded in subsequent iterations. New York lawmakers have also introduced legislation that would ban most NDA and nondisparagement clauses that prevent disclosure of harassment or discrimination in employment contracts.
What should employers do now?
The Speak Out Act is hardly the first of its kind. Last March, Congress passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, prohibiting enforcement of any pre-dispute arbitration agreement in these types of cases. With these trends in federal and state law, employers must take action:
- Update your new employment contracts. While the law does not prohibit broad agreements full-stop, HR departments should review new agreements and ‘form’ agreements, to ensure they will withstand legal scrutiny. You do not need to change or try to get existing agreements signed anew. Just be aware that a requirement of an NDA is likely not enforceable.
- Refresh your training materials and HR response policies. Ensure your company’s response is in compliance with federal and state laws. This includes training supervisors and updating company policies.
- Consult counsel. Speak with an attorney if you have any questions about this new federal law or your obligations under state law.
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