Federal Restrictions on NDAs for #MeToo Claims Expected to Become Law

The "Speak Out Act" (H.R 8827), a #MeToo-inspired bill prohibiting pre-dispute nondisclosure and nondisparagement clauses when sexual harassment or assault is alleged, has cleared Congress. Previously, President Biden issued a statement signaling that he strongly supports the bill and will sign. The bill will become effective upon his signature. Earlier this year, Congress passed another #MeToo-inspired bill, prohibiting the use of mandatory arbitration agreements for sexual harassment or assault claims. Employers should consider carefully reviewing employment-related handbooks, policies, and agreements with arbitration, nondisclosure, or nondisparagement terms to ensure compliance and enforceability.

"Speak Out Act"

The Speak Out Act effectively bans judicial enforcement of employment nondisclosure and nondisparagement terms, entered into prior to a dispute, with the goal of combatting workplace sexual harassment and assault, holding perpetrators accountable, and empowering victims to come forward.

The Speak Out Act passed the Senate by unanimous, bipartisan consent in September, and House lawmakers recently voted 315-109 in favor of the measure. Proponents of the Act favor the broad protections they argue it affords all Americans, while opponents are concerned about federal overreach into state contract law and believe the bill may lead to an increase in false claims to undo confidentiality agreements in unrelated disputes.

What Employers Need to Know

• Nondisclosure clauses are unenforceable if they are:
  • entered into prior to a lawsuit (brought under federal, state, or tribal law); and
  • prevent disclosure or discussion of illegal conduct or the existence of a settlement involving illegal conduct.
• Nondisparagement clauses are unenforceable if they are:
  • entered into prior to a dispute; and
  • prohibit negative statements about an individual that relate to the claim of sexual harassment or assault.
  • For nondisparagement clauses, "predispute" is not defined. Therefore, it is unclear if a lawsuit must be filed or if a government agency or internal complaint would suffice.
• Prohibited predispute clauses are unenforceable regardless if they are entered into by current or former employees, independent contractors, or providers of goods and services to consumers.
• Pre-dispute nondisclosure agreements can still be used to protect trade secrets, confidential or proprietary information.
• Post-dispute employment-related agreements, such as settlement agreements, may still contain nondisclosure or nondisparagement terms, even when sexual harassment or assault is alleged.

A Patchwork of Federal and State Laws

Critically, the Speak Out Act does not preempt state or local laws that provide more protection to employees. Since the advent of #MeToo, over a dozen states have passed new laws restricting employment-related nondisclosure and nondisparagement terms. Moreover, the Silenced No More Foundation continues to champion model legislation in other states. This model legislation would apply to employment, settlement, and severance agreements and prohibit attendant nondisclosure or nondisparagement provisions that restrict employees from disclosing or discussing violations of clear mandates of public policy as well as any type of illegal discrimination, harassment, retaliation, and wage and hour infractions – not just related to sexual harassment or assault.

Because the Speak Out Act does not replace these laws, employers must ensure all employment-related agreements also comply with applicable state and local laws that may be more restrictive. This includes:

• California's Silenced No More Act prohibits employers from entering into employment-related settlement agreements that restrict the disclosure of claims of factual information related to all forms of unlawful harassment, discrimination, and related retaliation—not just those based on sex.
• New York's Let Survivors Speak Act prohibits the enforcement of liquidated damages clauses in discrimination settlement agreements between employers and employees.
• Washington's Silence No More Act applies to employment, settlement, and severance agreements and prohibits attendant nondisclosure or nondisparagement provisions which restrict employees from disclosing or discussing violations of clear mandates of public policy, and any type of illegal discrimination, harassment, retaliation, and wage and hour infractions.
• Oregon's Workplace Fairness Act currently prohibits employers from entering into agreements that have provisions (confidentiality, nondisparagement, or otherwise) which have the purpose or effect of preventing employees, who have claimed discrimination or sexual assault, from discussing or disclosing such alleged conduct. There are exceptions for severance and settlement agreements with departing employees who request the provision and receive a revocation period. Beginning January 1, 2023, the restrictions under the Workplace Fairness Act expand to also prohibit employers from entering into agreements that prevent the disclosure of the amount of, or fact of, any settlement related to claims of discrimination or sexual assault, unless the employee requests the provision. Additionally, the Oregon law will require that employers provide employees, who have complained of discrimination and sexual assault and with whom the employer seeks to enter into a settlement or separation agreement, a copy of the employer's anti-discrimination policy.

Implications for Employers

Considering the Speak Out Act, and the increasingly complex landscape of federal and state laws surrounding nondisclosures and nondisparagements, employers may want to consider taking the following steps:

• Review relevant employment handbooks, policies, and dispute resolution procedures in consideration of overlapping federal and state laws to ensure they are responding appropriately to employee claims of sexual harassment or assault.
• Review standard employment agreement language. While the new law does not make any specific contract language illegal, it may make some language typically contained in employment handbook, policies, employee agreements, severance agreements, and the like, unenforceable if it restricts the types of disclosures that can be made. Since the law will be effective immediately once signed, employers should consider working with counsel now to review standard language to ensure nondisclosure and nondisparagement terms are properly tailored to protect trade secrets and confidential or proprietary information without running afoul of these laws.

For more information on the "Speak Out Act," state laws, or more generally on employment-related nondisclosure or nondisparagement agreements, please contact a Davis Wright Tremaine employment attorney.