United States: Speak Out Act Should Prompt All Employers To Revisit Nondisclosure And Nondisparagement Agreements

Many businesses ask employees to sign confidentiality and nondisclosure agreements to protect trade secrets and proprietary information. Likewise, when employment ends or when resolving workplace disputes, employees are often asked to sign agreements containing nondisclosure and nondisparagement clauses in exchange for severance.

Such agreements have come under increasing scrutiny as a result of the #MeToo movement because they may limit sexual harassment and sexual assault victims from reporting and publicly disclosing their abuse. Many state legislatures, including Washington, Oregon, and California, have passed laws that regulate nondisclosure clauses, resulting in a complicated patchwork of laws. The federal Speak Out Act, signed by President Joe Biden on December 7, again changes the playing field for pre-dispute agreements containing nondisparagement and nondisclosure clauses. This should prompt employers of all sizes and locations to revisit their standard agreements.

What Employers Need To Know Now

1. The Speak Out Act applies only to pre-dispute agreements. The Act specifically applies to nondisclosure and nondisparagement clauses "agreed to before the dispute arises."

2. The Act impacts pre-dispute nondisclosure and nondisparagement clauses. Under the Act, any nondisclosure and nondisparagement clause agreed to before a dispute arises is no longer enforceable to prohibit an individual from discussing sexual assault and/or sexual harassment. In passing this federal law, Congress found that nondisclosure and nondisparagement provisions can "perpetuate illegal conduct by silencing those who are survivors of illegal sexual harassment and assault or illegal retaliation, or have knowledge of such conduct, while shielding perpetrators and enabling them to continue their abuse." Congress further found that prohibiting these clauses "will empower survivors to come forward, hold perpetrators accountable for abuse, improve transparency around illegal conduct, enable the pursuit of justice, and make workplaces safer and more productive for everyone."

3. The Act broadly applies to most agreements and sexual assault and harassment disputes. The Act applies to any pre-dispute agreement containing a "nondisclosure" or "nondisparagement" clause in the event there is a "sexual assault" or "sexual harassment" dispute. In its findings, Congress noted that nondisclosure and nondisparagement provisions are found in "agreements between employers and current, former, and prospective employees, and independent contractors, and between providers of goods and services and consumers." For this reason, the law will likely impact agreements with independent contractors, vendors, and consumers, as well as employees.

Given the Act's broad reach, the law's definitions are critical:

• "The term 'nondisclosure clause' means a provision in a contract or agreement 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."
  
• "The term 'nondisparagement clause' means a provision in a contract or agreement 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."
  
• "The term 'sexual assault dispute' means a dispute involving a nonconsensual sexual act or sexual contact, as such terms are defined in section 2246 of title 18, United States Code, or similar applicable Tribal or State law, including when the victim lacks capacity to consent."
  
• "The term 'sexual harassment dispute' means a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law."

4. The Act carves out certain trade secrets and proprietary information. The Act contains an exception for trade secrets and proprietary information, stating "[n]othing in this Act shall prohibit an employer and an employee from protecting trade secrets or proprietary information."

5. Limited retroactive application and scope. The Act applies to agreements containing nondisclosure or nondisparagement clauses entered into before December 7, 2022 in disputes involving claims for sexual harassment or sexual assault. The Act does not apply to other claims.

What Should Employers Do Now?

• Review your organization's standard employment agreements for any nondisclosure and nondisparagement clauses and modify the agreements, if necessary.
• Before enforcing any agreements entered into before a dispute arises – including employment agreements, confidentiality agreements, independent contractor agreements, and separation agreements – employers must ensure that any nondisclosure or nondisparagement clauses comply with all restrictions imposed by the Speak Out Act and any state laws. Some states, including Washington, Oregon, and California, have their own laws that also impose substantial penalties against employers who seek to enforce clauses that are unlawful.
  
• Ensure your organization has adopted anti-harassment policies and reporting processes so that sexual harassment and sexual assault claims are reported internally. Consider modifying those policies to address the Speak Out Act. If claims are reported, this provides your organization the opportunity to investigate and resolve these claims before they are filed in court or with one of the enforcement agencies, such as the Equal Employment Opportunities Commission or a state fair employment practices agency;
  
• Train staff, supervisors, and management about your anti-harassment policies and reporting process, and create reasonable pathways for employees to report claims;
  
• Promptly respond to reported concerns, consult with your legal counsel for investigation guidance, and take effective remedial steps to end inappropriate conduct; and
  
• Consult with legal counsel before entering into any separation or settlement agreement involving claims of sexual harassment or sexual assault, especially if the employee separates from employment.