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President Biden Signs Bill Limiting Use of NDAs in Sexual Harassment Cases

December 5, 2022
NDA

[UPDATED 12/7/2022: Speak Out Act signed by President Biden]

Last month, Congress passed the Speak Out Act, which prohibits employers from using pre-dispute nondisclosure and non-disparagement agreements in disputes arising from sexual assault and sexual harassment. The Act, which passed unanimously in the Senate and with overwhelming bipartisan support in the House of Representatives, was signed by President Biden on Dec. 7, 2022. President Biden previously expressed his support for the Act, which will take effect immediately. The Act complements the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, signed by President Biden earlier this year, which prevents mandatory arbitration for employees suffering from sexual assault or sexual harassment in the workplace.

Key Definitions, Prohibitions and Implications of the Speak Out Act

Inspired by the #MeToo movement, the Act seeks to prevent employers from silencing employees who experienced sexual assault or sexual harassment in the workplace. Employers should be cognizant of the following key definitions, prohibitions and implications of the Act:

Definitions

The Act broadly defines a “nondisclosure clause” as a provision:

“That requires the parties to the contract or agreement not to disclose or discuss conduct, the existence of a settlement involving conduct, or information covered by the terms and conditions of the contract or agreement.”

A “non-disparagement clause” is defined as a provision:

“That requires 1 or more parties to the contract or agreement not to make a negative statement about another party that relates to the contract, agreement, claim, or case.”

While the Act defines the terms “sexual assault dispute” and “sexual harassment dispute,” it remains unclear whether a dispute under the Act is limited to formal litigation or also encompasses informal complaints.

Pre-Dispute Nondisclosure and Non-Disparagement Clauses

The Act prohibits enforcement of certain nondisclosure and non-disparagement clauses in disputes arising from sexual assault and sexual harassment in violation of federal, state or tribal law. Importantly, the Act only precludes nondisclosure and non-disparagement clauses that are entered into before a sexual assault or sexual harassment dispute arises, such as at the time of hire.

Confidential Settlement Agreements

The Act does not prohibit employers from executing confidential settlement agreements after a sexual assault or sexual harassment dispute arises. Thus, the Act has no impact on nondisclosure and non-disparagement agreements that are entered into as part of a settlement. However, employers should be mindful of the Tax Cuts and Jobs Act, signed into law by President Trump in 2017, which prohibits deductions from settlements related to sexual harassment or sexual abuse if such settlement payment is subject to a nondisclosure agreement.

Trade Secret Protection

The Act also does not prohibit employers from protecting their trade secrets and proprietary information. Thus, employers are permitted to continue requiring nondisclosure agreements for purposes of protecting trade secrets and proprietary information.

Scope

The Act refers to nondisclosure and non-disparagement clauses “between employers and current, former, and prospective employees, and independent contractors, and between providers of goods and services and consumers.” Accordingly, employers should interpret the Act broadly as applying to agreements with both employees and independent contractors.

Applicability

The Act applies to all sexual assault and sexual harassment disputes that arise on or after the date of being signed into law by President Biden, Dec. 7, 2022.

Employers Should Review All Pre-Hire and Standard Employment Agreements

To ensure compliance with the Act, employers should review all pre-hire and standard employment agreements and remove any nondisclosure and non-disparagement provisions that specifically refer to sexual assault and sexual harassment. While nondisclosure and non-disparagement provisions that do not specifically refer to sexual assault and sexual harassment but are broad enough to cover those situations do not need to be removed altogether, employers should recognize that such provisions will not be enforceable in the sexual assault and sexual harassment contexts.

Employers should also recognize that such provisions in employment agreements and handbooks may be considered an “unfair labor practice” under the National Labor Relations Act if they are overbroad and prevent employees from engaging in protected concerted activity. In addition, any nondisclosure or non-disparagement provisions that prevent disclosure of trade secrets and proprietary information should be narrowly tailored. Employers should also review their sexual harassment policies and procedures and prioritize creating a workplace environment that does not tolerate sexual assault or sexual harassment.

For more information or to discuss the implications of the Speak Out Act further, please contact KJK’s Labor and Employment Chair Rob Gilmore (rsg@kjk.com; 216.736.7240) or Attorney Hannah Kraus (hjk@kjk.com; 216.736.7243).

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