New Federal Law Restricts Employers' Use of Non-Disclosure Agreements
Over the past few years, an increasing number of states have passed legislation restricting the permissible scope of employee non-disclosure agreements (“NDAs”). (This array of state laws, which have been a direct response to the #MeToo movement, is discussed in our recent E-Alert.) These laws have been the result of lobbying efforts at the state and federal levels aimed at the use of NDAs by “bad actors” to silence victims of sexual harassment and sexual assault.
This push for workplace protections aimed at sexual harassment included the U.S. Congress, which recently passed its own legislation: the Speak Out Act. The new law, which passed both houses of Congress by wide margins and is expected to be signed into law by President Biden, is less impactful than most of the state legislation. However, as a federal law, it is applicable to employers in all fifty states and the federal territories. This means it adds a “floor” of basic NDA restrictions even though it does not hit the higher “ceiling” of some existing state laws.
Background: Legislative Reaction To #MeToo
Sixteen states have passed new laws restricting NDAs since the advent of #MeToo. At the federal level, #MeToo advocates led by former Fox News hosts Gretchen Carlson and Julie Roginsky undertook successful lobbying efforts for a federal bill restricting NDAs in cases of sexual harassment or assault, resulting in the Speak Out Act (the “Act”). The Act passed the Senate on September 29, 2022 and the House on November 16, 2022, and the legislation awaits only President Biden’s signature to become law.
Provisions Of The Speak Out Act
The federal legislation is less ambitious in scope than its #MeToo state counterparts. The Act includes four primary provisions:
a. For a sexual assault or sexual harassment dispute, no non-disclosure clause or non-disparagement clause agreed to before the dispute arises shall be judicially enforceable in instances in which conduct is alleged to have violated federal, tribal, or state law.
b. States may pass or maintain their laws governing NDAs in this context that are at least as protective as the Act, and nothing in the law invalidates an otherwise valid state law on this same subject.
c. The Act does not alter the ability of plaintiffs to use pseudonyms in any claims or disputes involving sexual harassment or assault.
d. The Act does not prevent employers from protecting trade secrets or proprietary information through NDAs.
What The Act Means
The Act expressly applies not only to NDAs, but to “non-disparagement clauses” in the context of sexual assault or harassment disputes – that is, any contractual provision that requires any party not to make a negative statement about another party that relates to the contract, agreement, claim, or case. The type of clause or its form is less important than the effect on an employee.
Regardless of the type of agreement, the Act applies only to pre-dispute agreements, so it is clearly not applicable to settlement agreements.
However, it is less clear whether the Act applies to other agreements that may fall in between. Separation agreements, for example, can be either pre- or post-dispute. In an employment termination occasioned by a reduction in force, the Act arguably could apply, since there was no “dispute,” just a separation. On the other hand, many individual separations result from workplace disputes, which would arguably make such agreements post-dispute and outside the scope of the Act.
The Act is also prospective-only, so it does not invalidate existing NDAs retroactively. Any contract in existence when President Biden signs the bill into law would still be enforceable as a matter of federal law.
It is also notable that the Act extends its coverage not just to employees, but also to independent contractors. This provision appears designed to protect “gig workers” in the same manner as employees.
Impact Of The Law
The Speak Out Act will likely have limited practical impact. Again, the law does not impact settlement agreements or any other post-dispute agreement provisions. In addition, broad pre-dispute NDAs are not widely used; most employer NDAs specifically encompass only proprietary information and trade secrets, which are not included in the Act’s coverage. Further, the Act applies only to pre-dispute NDAs in the context of sexual harassment and sexual assault, and not other types of harassment or discrimination.
In addition, the Act does not provide for any sanctions or authorize employees to bring private actions under the statute. The Act simply makes all pre-dispute NDAs dealing with sexual harassment and sexual assault “judicially unenforceable.”
Further, many states have already enacted much more restrictive limitations on NDAs, so employers in those states may not be likely ever to meet the “floor” set by this federal law.
Employers in all states should review their employment policies and agreements and ensure that they do not purport to impose non-disparagement or non-disclosure provisions for sexual harassment or assault on current or prospective employees.
Because the Act is aimed at pre-dispute provisions, employers should take special care to review their employment agreements, employee handbooks, and any other onboarding documents to make certain they comply with the new law.
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