Recent Changes to NDAs in Employment Contracts and Settlement Agreements

For years, companies have used non-disclosure agreements (“NDAs”) and non-disparagement agreements in employment contracts and settlement agreements. These provisions primarily allow companies to protect sensitive business information, but can also be used to prevent workers from speaking about harassment and discrimination in the workplace. While some victims of workplace discrimination enjoy the assurance of privacy that comes with an NDA, others see these provisions as silencing workers. Particularly within the #MeToo movement, NDAs were largely blamed for shielding perpetrators of harassment and discrimination from accountability, prompting significant backlash. California’s SB 331, the “Silenced No More Act,” is the latest in a string of state laws aimed at restricting the use of NDAs and non-disparagement agreements in settlement and employment contracts. Other states – including Oregon, New York, New Jersey, Illinois, Nevada, Vermont, Washington, Tennessee, and Virginia – have recently instituted similar laws.

The patchwork of state laws addressing NDAs and non-disparagement provisions, however, is inconsistent. Some laws address all types of workplace discrimination, while others, fueled by the #MeToo movement, address only sexual harassment and assault; some are only applicable to employment contracts and some only to settlement agreements. This article provides an overview of the varying approaches states have taken to restrict NDAs and non-disparagement clauses.

Laws Covering All Forms of Workplace Discrimination

California was one of the first states to institute a #MeToo-driven law prohibiting confidentiality agreements in sexual harassment cases. S.B. 820, 2017-18 Reg. Sess. (Cal. 2018). With SB 331, signed into law by Governor Gavin Newsom, California expanded already existing restrictions on NDAs in cases concerning sexual harassment to include all forms of workplace discrimination, harassment, and retaliation, instituting the greatest protections for workers of any other state law. Specifically, SB 331 prohibits NDAs restricting the disclosure of factual information related to discrimination, harassment, and/or retaliation in settlement agreements. However, NDAs are still possible where the claimant requests one in order to shield their identity or all facts that could lead to the discovery of their identity. Additionally, the law prevents employers from requiring employees to sign non-disparagement provisions in their employment contracts if doing so would prevent an employee from disclosing information about what the employee reasonably believes are unlawful acts in the workplace, including any form of discrimination or harassment. S.B. 331, 2021-22 Reg. Sess. (Cal. 2021).

Oregon similarly prohibits non-disparagement clauses or NDAs in employment contracts if they would limit an employee’s ability to disclose workplace discrimination or harassment. However, Oregon’s law does not prohibit NDAs in settlement agreements if the aggrieved employee requests one. The employee then has seven days after signing to revoke any such agreement. Or. Rev. Stat. § 659A.370.

New York has taken a more pliant approach. New York’s law allows NDAs in settlement agreements only if the NDA is the preference of the aggrieved employee. For the NDA to be enforceable, the employee must be given 21 days to consider the term. As under Oregon law, the employee also has seven days after signing to revoke the agreement. N.Y. Gen. Oblig. Law § 5-336. If an employer includes an NDA in an employment contract, the contract must make it clear that an employee can speak to law enforcement, a lawyer, or a state or federal agency tasked with addressing employment discrimination.

Under the “Workplace Transparency Act,” Illinois prohibits unilateral NDAs and non-disparagement clauses in employment contracts which would prevent the disclosure of any unlawful employment practice, including workplace harassment and discrimination. 820 Ill. Comp. Stat. 96 § 1-25. Illinois’s law allows for NDAs in settlement or termination agreements only if such an agreement is the documented preference of the employee. The employee must be given 21 days to consider the NDA, and is entitled to revoke the agreement within 7 days. 820 Ill. Comp. Stat. 96 § 1-30.

Under New Jersey’s law, if an aggrieved employee has signed an NDA and changes their mind and wishes to speak out about discrimination or harassment they experienced, the NDA is unenforceable against them. N.J.S.A. § 10:5-12.8. But affected employees should know that once they publicly reveal information which makes the employer identifiable, the NDA is unenforceable against the employer, who can then speak publicly on the issues that were subject to the confidentiality clause.

Laws Covering Only Sexual Harassment, Discrimination, or Assault

Washington and Tennessee have similar laws relating only to sexual harassment. Both states prohibit employers from requiring an employee to sign an NDA in their employment contract which would restrict the employee’s ability to discuss sexual harassment in the workplace. Wash. Rev. Code Ann. § 49.44.210(1); Tenn. Code Ann. § 50-1-108. However, no such restriction exists for NDAs concerning other forms of discrimination, such as race, age, or disability discrimination. And under both states’ laws, NDAs in settlement agreements are permissible.

Virginia’s law is even narrower. Pursuant to a 2019 law, “Nondisclosure or Confidentiality Agreements; Sexual Assault, Condition of Employment” (Va. Code § 40.1-28.01), employers cannot require job applicants or current employees to sign an NDA that would prevent disclosure of a sexual assault claim they have against the employer. Any such provision is void and unenforceable. The provision does not include former employees, meaning an employer can continue to require and enforce an NDA in a settlement agreement with a former employee for all types of discrimination claims, including sexual assault.

Maryland’s law, the “Disclosing Sexual Harassment in the Workplace Act” requires employers to disclose past sexual harassment settlements to the Maryland Commission on Human Rights. S.B. 1010, 2018 Reg. Sess. (Md. 2018). It also prohibits waivers of any substantive or procedural right or remedy with respect to reporting workplace sexual harassment in an employment contract. Md. Code Ann., Lab. & Emp. § 3-715.

Laws Covering Disclosure to State and Federal Agencies, Law Enforcement, or in Judicial Proceedings

Finally, some states have legislated that employees cannot be prevented from participating in an agency investigation concerning discrimination, cooperating with law enforcement, or participating in lawsuits.[1]

Nevada’s law generally permits employees and employers to enter into settlement agreements that prevent the employee from disclosing their allegations of discrimination. However, if an employee’s claims concern sexual offenses, sex discrimination, or retaliation based on reporting sex discrimination, and that employee has already filed a civil action or an administrative action based on such a claim, they cannot be required to keep confidential the facts and circumstances related to their claim. But if an employee has not filed a claim in court or with an administrative agency and reaches a settlement, such NDAs are permissible. Nev. Rev. Stat. § 10.195. In May 2021, Nevada also passed a bill restricting NDAs that prevent employees from testifying at a judicial or administrative proceeding. Under AB 60, an employee who enters into a contract or settlement agreement cannot be prevented from testifying against the employer at a judicial or administrative proceeding regarding sexual harassment, discrimination, or retaliation. Assem. B. 60, 81st Leg. (Nev. 2021).

Under Arizona law, employees are specifically permitted to respond to an inquiry by a law enforcement agent or prosecutor relating to a sexual offense or obscenity, even if they have signed an NDA. Employees also cannot be prevented from testifying in a criminal proceeding on matters relating to a sexual offense or obscenity, so long as the employee did not initiate the testimony. Ariz. Rev. Stat. Ann. § 12-720. The 2018 law also prohibits the use of public funds as consideration for an NDA that is related to a sexual assault or sexual harassment allegation.

In Vermont, an agreement to settle a sexual harassment claim must explicitly state that the claimant is not prohibited from lodging a complaint of sexual harassment with the Attorney General, the state prosecutor, or state and federal agencies; participating in an investigation conducted by those entities with respect to sexual harassment; or testifying in court or at an arbitration related to a claim of sexual harassment. Further, employment contracts may not prohibit an employee from opposing, disclosing, reporting, or participating in an investigation of sexual harassment. Vt. Stat. Ann. tit. 21, § 495h.

The legality and enforceability of NDAs in employment contracts and settlement agreements vary significantly from state to state, and will likely continue to evolve due to social movements such as #MeToo. If you have questions about your rights as an employee, you should consult with an employment lawyer. Sanford Heisler Sharp, LLP has experienced employment lawyers in New York, Washington DC, Baltimore, San Francisco, San Diego, and Tennessee.

Footnotes

[1] While this legislation makes clear that a contract preventing cooperation with agencies, courts, or law enforcement is unenforceable, several courts have previously held that such agreements violate public policy, which suggests they could be unenforceable even absent such a law. See, e.g.Cosby v. Am. Media, Inc., 197 F. Supp. 3d 735, 741 (E.D. Pa. 2016) (an NDA that “purports to prevent its signatories from voluntarily disclosing information about crimes to law enforcement authorities [ ] is unenforceable as against public policy”); Hamilton v. Juul Labs, Inc., No. 20-cv-03710-EMC, 2021 WL 275485, at*8 (N.D. Cal. Jan. 27, 2021) (finding that an NDA could be interpreted as preventing “communications about potential violations of state or federal laws or regulations, in violation of Labor Code § 1102.5(a)”).

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