A new law limits the enforceability of nondisclosure and non-disparagement clauses in claims involving sexual harassment in the workplace. After being passed by Congress, on November 16, 2022, the Speak Out Act (SOA) was signed into law by President Biden on December 7, 2022.
No Advance or Pre-Dispute Restrictions on Speaking Out
The effect of the SOA is to render pre-dispute nondisclosure or non-disparagement clauses unenforceable when a dispute arises from allegations of sexual assault or sexual harassment. The dispute at issue need not be a full-blown lawsuit as prior iterations of the bill provided. Instead, once any allegation of sexual assault or sexual harassment arises, there is a “dispute” under the SOA, rendering any previously signed nondisclosure or non-disparagement clause unenforceable. Because these clauses are most usually found in employment contracts, the provisions of the SOA are directed at the employment relationship.
No Interference with Protections of Employer’s Business Interests (Like Trade Secrets)
The SOA specifically provides that nothing in the Act prohibits an employer from protecting trade secrets or proprietary information. As a result, ordinary narrow employment provisions aimed at protecting legitimate, business interests remain intact. For example, employers may continue to require confidentiality and non-disclosure related to confidential business interests, like non-public pricing margins, customer account details, product specifications, and other proprietary information. Further, employers may continue to use non-disparagement provisions that limit employees from bad mouthing the employer’s products, services, and customers. However, certain limitations already exist on confidentiality and non-disparagement provisions, such as those found under the whistleblower provisions of the numerous laws, including Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the Defend Trade Secrets Act of 2016 to name a few.
Post-Dispute Confidentiality and Non-Disparagement Provisions Apply
Importantly, the SOA only applies to nondisclosure and non-disparagement clauses that pre-date a dispute, including in independent contractor or consulting agreements. Once the dispute is known to the parties, they are free to execute a nondisclosure or non-disparagement clause aimed at governing the parties’ conduct moving forward. Despite the ability for employers to include confidentiality and non-disparagement provisions, they must remember the impact of the Tax Cuts and Jobs Act on any payments made resulting from settlements of such claims. We previously discussed the impact of the Tax Cuts and Jobs Act on employers, specifically how employers cannot take a tax deduction for any settlement payments or attorneys’ fees related to a sexual harassment or abuse settlement if it contains a confidentiality.
What This Means for Employers
Employers should review their employment agreements, confidentiality agreements, independent contractor agreements, handbooks and policies to ensure that any nondisclosure or non-disparagement clauses are amended: (a) either to exclude unknown disputes arising from sexual assault or sexual harassment allegations or (b) otherwise modified to ensure maximum enforceability consistent with the SOA.
It may also be helpful to identify existing disputes where the SOA may be implicated to save from any attempt at effectuating an unenforceable disclosure provision. While most companies require mandatory reporting of sexual harassment or abuse, additional reminders, communications, and trainings on these requirements should be considered.
Because the SOA only protects against unknown disputes, employers should also review their separation and settlement agreements to ensure that any nondisclosure or non-disparagement clauses contained in such agreements are in compliance with the provisions of the SOA. Employers should be mindful that disclosure language that is too broad or overly vague may be found contrary to the provisions of the SOA and deemed unenforceable.
The SOA joins in on the legislative trend seen following the #MeToo movement aimed at affording victims of sexual assault and harassment in the workplace the freedom to report their abuse without the threat of legal proceedings. While the SOA does not allow for damages or penalties, employers should consider the limitations set by other legislation enacted on this trend, such as the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act and the Tax Cuts and Jobs Act.
The SOA is the federal response to sexual assault and harassment in the workplace, but it affords for greater protections on nondisclosure or non-disparagement clauses that has been enacted by some individual states. States with similar, more expansive iterations of the SOA include New Jersey, Washington, California, and New York, among others. Employers should also take steps to ensure their compliance with any applicable state laws when entering into confidentiality and non-disparagement agreements.