9

January, 2023

Contractor Agreements Subject to Federal/State Law Prohibitions on Confidentiality and Nondisparagement

In yet another example of laws blurring the distinction between employees and independent contractors, organizations need to beware that the prohibitions on confidentiality and nondisparagement agreements embodied in the federal Speak Out Act and various state laws often are equally applicable to independent contractor agreements.  The motive behind these prohibitions is driven by the egregiousness of the workplace behaviors that have been disclosed in the past several years, and the loopholes in existing laws that enabled such behaviors and kept them from being reported.  There are, however, significant differences in the nature of the relationship between an employee and an independent contractor, which may lead organizations to incline toward retaining confidentiality clauses in agreements with their contractors to the maximum extent possible while complying with the new laws.

The Business Need for Confidentiality Assurances

Independent contractors, which may include consultants, gig workers, and others providing services to support an organization, typically have a more temporal connection to the organization by which they have been contracted than do employees.  They may be providing services to multiple organizations simultaneously or serially, including in the same industry and among competitors.  In order to effectuate the work for which they have been retained, independent contractors may also need access to, or otherwise be privy to, confidential, proprietary, or trade secret information pertaining to those organizations.

Organizations thus have significant, valid reasons to require independent contractors to execute agreements, as a condition of providing the contracted services, that impose confidentiality, nondisparagement and other restrictions.  Typically in the past, organizations have drafted those agreements broadly, to protect their competitive information.  Federal and state laws now require more precision, and failure to adhere to the laws’ strictures risks invalidating the entire confidentiality or nondisparagement clause, thereby leaving the organization exposed to the sharing of its competitive information with other organizations or the public.

Standard Contractor Templates May Violate Federal Law

The federal Speak Out Act requires organizations to ensure their confidentiality and nondisparagement clauses with independent contractors do not limit the contractors’ ability to disclose information related to a sexual assault or sexual harassment dispute.  Provisions that may run afoul of the law include those that:

  • broadly restrict disclosure of “all information that the organization makes available to the contractor;”
  • prohibit disclosure of “Confidential Information,” defined to include not just proprietary information and trade secrets, but also “information about employees and employee relations, training manuals and procedures, information about recruitment method and procedures, employment contracts, employee handbooks…” and similar employment documents and information;
  • define “Confidential Information” as information that that has been marked as “confidential” or “proprietary,” that has otherwise been identified as confidential or that, “due to its character and nature, a reasonable person under like circumstances would treat as confidential;” or
  • prohibit disclosure of “Personal Information,” defined to include information that identifies, relates to, describes, or could reasonably be linked with a particular individual.

None of these examples, taken from real contractor agreements, were written with an intent to keep secret incidents of sexual harassment or sexual assault that might occur in the workplace.  But each of them may, in fact, have that effect, which is why it would be prudent for organizations to review their contractor agreement templates and revise them to conform to the new federal law.

State Laws Also Impose Limits on Contractor Agreements

As discussed in the second article in this series, various states have adopted their own restrictions on confidentiality and nondisparagement clauses.  In some jurisdictions those restrictions apply equally to agreements with independent contractors.  Organizations should note, for example:

  • New York’s restrictions on any agreement to resolve a discrimination claim that would prevent the person who complained from disclosing the underlying facts and circumstances of the harassment, which extends to protect anyone with a viable discrimination claim (including independent contractors);
  • Illinois’s restrictions on all agreements that preclude “truthful statements” regarding alleged unlawful harassment, discrimination or retaliation, which apply to both employees and non-employees (contractors and consultants); and
  • Washington state’s restrictions on provisions that limit employees (defined to include independent contractors) from disclosing conduct, or the existence of a settlement involving conduct, that the employee reasonably believed under state or federal law to be a violation of EEO laws, a wage and hour violation, sexual assault, or otherwise against a clear mandate of public policy.

More of these laws are being passed each year, and states that were early adopters have been looking to other locations and amending their laws accordingly to impose greater restrictions on organizations.  Organizations that wish to protect their confidential and competitive information may need to revisit their existing agreements and consult with legal counsel to ensure they are legally enforceable and their business interests are protected as much as possible.

By Tracey I. Levy

Facebooktwitterredditpinterestlinkedinmail
5

January, 2023

Hiring Nationally? Multi-State Employers Must Carefully Navigate Varying Legal Restrictions on Confidentiality and Nondisparagement Clauses

Viewed as a stumbling block or more nefariously in relation to the reporting and investigation of #MeToo complaints, state legislatures across the country have been limiting or outright prohibiting employers from subjecting employees to confidentiality and nondisparagement clauses.  The challenge for employers operating in multiple states that may wish to maintain some version of a confidentiality or nondisparagement clause in agreements with their employees is that variations in the scope and terms of these restrictions require agreements tailored to each employee’s work location, or adoption of a bare bones form of confidentiality or nondisparagement agreement.

Federal Speak Out Act Sets the Minimum Requirement

As discussed in our prior blog article on this subject, the federal Speak Out Act applies in the context of agreements entered into before an employment dispute has arisen.  The law renders unenforceable any confidentiality or nondisclosure clause, or any nondisparagement clause, entered into with an employee that limits the employee’s ability to disclose information related to a sexual assault or sexual harassment dispute.  The Speak Out Act further provides that it is not meant to supersede any state or local law governing confidentiality or nondisparagement clauses that is more protective of individual employees, and numerous states have passed or updated laws that impose restrictions in this context.

States Prohibiting Restrictions Related to EEO Concerns

New York State, New Jersey and Illinois generally permit employers to have confidentiality and nondisclosure agreements with employees, but they exemplify the approach of prohibiting agreements from restricting disclosures related to concerns under the equal employment opportunity (“EEO”) laws.  New York’s version is perhaps the most narrowly-tailored of these restrictions.  It prohibits employers from entering into any agreement either in a pre-dispute context or to resolve a discrimination claim that would prevent the person who complained from disclosing the underlying facts and circumstances of the harassment.  As discussed in our prior blog article, the New York law allows exceptions to these restrictions through special notice to the employee and other procedural requirements.

New Jersey law renders unenforceable a confidentiality clause in any employment contract or settlement agreement that would effectively conceal “the details” relating to a claim of discrimination, retaliation or harassment.  New Jersey’s law additionally provides that, if an employee publicly reveals enough information about a claim of discrimination, retaliation or harassment so as to render the employer reasonably identifiable, then the employer will no longer be bound by any confidentiality restrictions.  Employers are required to include in every settlement agreement resolving an EEO claim a bold, prominently placed notice advising the employee of the consequence of the employee’s public disclosure if the employer is thereby reasonably identifiable.

Similarly, Illinois law renders unenforceable any agreement that precludes an employee from making “truthful statements” regarding alleged unlawful harassment, discrimination or retaliation.  Illinois also makes an exception to this limitation where the employer can demonstrate that the confidentiality clause was negotiated as a mutual condition of employment or continued employment and is embodied in a written agreement that allows employees to provide truthful statements to government agencies, as required by law, regulation or legal process, or for purposes of receiving legal advice.  With respect to nondisclosure clauses in settlement or termination agreements, Illinois adopted an approach similar to that in New York, permitting a confidentiality restriction where demonstrably desired by the employee, the employee has been given notice of the employee’s right to consult with an attorney, the employee is not waiving any prospective claims, and the employee has been granted 21 calendar days to consider the agreement and seven calendar days to revoke acceptance of the agreement.  The employee also must still be able to testify in a proceeding related to unlawful employment practices when subpoenaed or in response to a written request by a government agency or the legislature.

States Prohibiting Restrictions Applicable to All Unlawful Workplace Concerns

California and Washington exemplify a broader approach.  California prohibits employers from requiring employees to sign a nondisparagement or other agreement at any point in the employment relationship, for any form of consideration, that denies the employee the right to disclose information regarding “unlawful acts in the workplace.”  The law defines those “unlawful acts” as including information pertaining to harassment or discrimination or “any other conduct that the employee has reasonable cause to believe is unlawful.”  If an employer includes a clause in an employment agreement that limits disclosure of any type of conditions in the workplace, California dictates specific language that must be added to the agreement to advise employees of their rights with regard to disclosing “unlawful acts.”

Washington State recently updated its law to preclude a provision in any agreement with an employee that limits disclosure of conduct, or the existence of a settlement involving conduct, that the employee reasonably believed under state or federal law to be a violation of EEO laws, a wage and hour violation, sexual assault, or otherwise against a clear mandate of public policy.  Like other states, Washington renders unenforceable any clause that violates the law, but it goes further in two respects.  First, Washington’s law applies retroactively.  Second, with respect to agreements adopted after the law took effect June 9, 2022, employers who are found liable for violating the law face civil liability for the greater of actual damages or $10,000, as well as reasonable attorneys’ fees and costs.  As an additional unique twist, Washington State’s law protects any individual who is a resident of the state, regardless of the individual’s location of employment.

California and Washington both permit employers to enforce confidentiality with regard to the amount paid in settlement of a claim.  In addition, those two states offer employers an exception to the nondisclosure and nondisparagement clause restrictions with regard to agreements settling certain pending claims and complaints.  Washington provides an exception to permit confidentiality clauses only for settlements of legal claims.

California’s exception extends to negotiated settlement agreements to resolve underlying claims filed in court, before an administrative agency, through alternative dispute resolution, or an employer’s internal complaint process.  However, a different California law still prohibits including in settlements of civil actions or administrative complaints based on claims of workplace harassment or discrimination any provision that precludes disclosure of factual information related to the claim or complaint.  At the employee’s request, such settlement agreements in California can include a confidentiality clause that shields the identity of the complainant employee and all facts that could lead to the discovery of the employee’s identity.

Taking a National Approach

Given the variations among the state laws, and the unique language dictated by various states where confidentiality or nondisparagement clauses are incorporated into agreements with employees, organizations that have employees across multiple states should work closely with legal counsel on the inclusion of any provisions in those agreements that require confidentiality or prohibit disparagement.  Language on confidentiality that may be permissible, for example, in an employment agreement in one state is likely impermissible in a state like California or Washington.  An employer might be able to employ that same confidentiality language in a settlement agreement with an employee in California or Washington but find the language impermissible in a settlement agreement with an employee in a state like New Jersey or Illinois. The rules of each jurisdiction matter, as does the context in which the agreement is being proffered.

By Tracey I. Levy

 

 

 

Facebooktwitterredditpinterestlinkedinmail
3

January, 2023

New York Employers Face Complementary Federal/State Restrictions on Confidentiality and Nondisparagement Clauses

New York employers that include confidentiality or nondisparagement clauses in any agreement they enter into with an employee – including offer letters, employment agreements, restrictive covenant/noncompete agreements, severance agreements or settlement agreements – must ensure those clauses comply with the new federal Speak Out Act and with existing New York State law.  Those laws impose restrictions at different stages of the employment relationship, and thus present complementary, but navigable, restrictions for employers.

Limitations on Clauses Prior to Any Employment Dispute

The Speak Out Act, which took effect December 7, 2022, renders unenforceable any confidentiality or nondisclosure clause, or any nondisparagement clause, in a contract or agreement with an employee if:

  • it is entered into before a dispute has arisen and
  • it limits employees from disclosure or comment on a sexual assault or sexual harassment complaint.

Under the federal law, employees must be permitted to discuss “conduct,” the existence of a settlement involving “conduct,” or information covered by the terms and conditions of the contract or agreement.  The law does not define “conduct,” but it is presumably referring to the facts and circumstances related to a sexual harassment or sexual assault claim.

The Speak Out Act does not apply to other types of employment disputes, including any category of harassment complaint other than sexual harassment.  It expressly states that it is not meant to preclude employers from protecting trade secret or proprietary information.  It therefore does not invalidate most aspects of a typical restrictive covenant agreement, but employers must take care when drafting their agreements and tailor their language so the agreements cannot be construed as violating the Speak Out Act.

Employers drafting pre-dispute employment agreements with confidentiality restrictions must additionally ensure that their agreements comply with New York State law.  New York law renders unenforceable any agreement between an employer and employee that prevents the disclosure of factual information related to any future claim of discrimination unless the agreement notifies the employee that it does not prohibit the employee from speaking with law enforcement, the Equal Employment Opportunity Commission, state and local human rights commissions, or an attorney.

Limitations on Clauses Once a Dispute Arises

Because the Speak Out Act only applies to pre-dispute agreements, it permits employers to include confidentiality and nondisparagement clauses in settlement agreements with employees once an employee has asserted a sexual harassment or sexual assault claim.  New York law, however, imposes limitations on employers in this context.

New York State prohibits employers from entering into any agreement resolving a discrimination claim that would prevent the person who complained from disclosing the underlying facts and circumstances of the harassment.  New York’s law is broader than the Speak Out Act in that it applies to all discrimination and harassment complaints, not just sexual harassment.  But it is narrower in that it:

  • only applies to the facts and circumstances underlying the harassment complaint;
  • is limited to agreements that are resolving a discrimination claim; and
  • does not place any additional limitations on nondisparagement clauses.

New York does not preclude confidentiality clauses that apply to other aspects of the parties’ employment relationship, and the law’s confidentiality restrictions do not apply to severance agreements (where employment is being terminated outside the context of a discrimination claim).

New York also permits a process whereby, in settling a discrimination claim, an employee who wishes to keep the matter confidential can enter into a written confidentiality agreement with the employer that is separate from the settlement agreement.  The law dictates very specific terms to this confidentiality agreement, including that employees be granted a full 21 days to consider the agreement (and FAQs issued by the New York State Division of Human Rights provide that the employee cannot sign before the end of the 21-day period), and have seven days post-signing to reconsider and revoke their agreement.  The confidentiality clause also cannot restrict an employee from providing information in response to a subpoena or in the context of a government investigation of a complaint, or from disclosing information necessary to receive unemployment insurance, Medicaid or other public benefits.

Where that Leaves Employers

Federal and New York law collectively still permit employers to impose confidentiality and nondisparagement restrictions on employees.  Employers must, however, draft those clauses in the pre-dispute context to permit the disclosure of information protected by the Speak Out Act and to include the clarifying notification where required under New York State law.  When settling a discrimination claim, New York employers need to ensure any confidentiality restrictions do not extend to the facts and circumstances of the underlying claim, unless the employee also desires confidentiality and the employer complies with the state’s procedural requirements for entering into a post-dispute written confidentiality agreement.

By Tracey I. Levy

Facebooktwitterredditpinterestlinkedinmail
24

October, 2022

Mandated Pay Transparency – the Public Posting of Salaries Being Offered – Is Imminent in NYC and CA

At the onset of the pandemic, when businesses were being shut down, new government edicts were materializing by the hour and it felt like the world had turned on its head, I heard from a great many clients, each trying in their own way to sort through the confusion. There was a level of chaos then that I hope never again to experience at quite that level in my professional career.

But I have advised and managed through other inflection points – times at which a jurisdiction (most typically NYC, thank you to my home stomping grounds) has rolled out a substantial change in employment laws that, while covered in advance by lots of law firms and journalists, still caught many employers by surprise. The advent of paid sick leave did that – with rules and guidance issued by the city literally at the eleventh hour before the effective date and employers that already had some form of paid sick leave benefit scratching their heads to discern how what they offered met (or more often did not meet) all that the new law required. And years before that it was the laws prohibiting smoking in the workplace – something that has now become a fairly standard workplace norm was radically shocking when it rolled out, with exceptions for private enclosed office spaces, signage mandates and a plethora of legislative compromises.

We are again at one of those inflection points, and this time the target is employer’s hiring practices. Next week New York City employers will face round one of the change, as November 1 brings with it a mandate that every job posting for a position that could be filled in the city (including by a remote worker) must specify the wage or job range for the position. That mandate takes effect in Westchester County on November 6 and for the entire state of California on January 1.

January 1 also will bring round two to New York City – a requirement that the myriad tools employers may now be deploying for their hiring practices undergo anti-bias testing and that those results, plus a plethora of other information, be made public on employers’ websites and through various notice requirements to job applicants. These requirements will cover the most basic of AI tools, like those that perform key word searches to help filter through (and reject) stacks of job applicants, to far more sophisticated systems that rate candidates’ suitability relative to designated hiring criteria or even conduct and analyze video interviews of prospective applicants.

One client recently commented that this is the full job security for recruiters law, and at least in the short-term it may be. New York City seems to place far greater faith in the unbiased (or at least more modestly scaled) feedback of recruiters and hiring managers than it does in technology that can be programmed to whittle applicant pools down to the choicest of candidates in the blink of an eye.

I have been writing and speaking of these legal changes for months and want to call out some of the resources you can reference for additional information.

  • For background on the basic elements of the pay transparency laws, see page 1 of Takeaways from Summer 2022. For similar background on the AI law, see page 5 of Takeaways from Winter 2021/22. And for the Westchester County piece of this, see my most recent posting on the WHRMA blog.
  • More in-depth articles that we have posted on each of these subjects for the Levy Employment Law blog include: NYC pay transparency law, NYC pay transparency guidance, AI tools, and pending NYS pay transparency legislation.
  • For some of the collateral consequences employers should be anticipating from pay transparency, see my Forbes interview with award-winning executive coach and author Dr. Ruth Gotian, and my more recent interview for the Employment Law column of SHRM, the Society for Human Resource Management.
  • For the broader context of how pay transparency aligns with the 50-year history of pay equity initiatives in the U.S., our firm delivered a continuing legal education program with the Federal Bar Association and MyLawCLE that can be accessed here.

And there are more articles to come, as we help our clients work through the practical applications and implications of these laws. I have been thinking through a range of options employers may wish to consider for their own organizations that get ahead of the pay transparency issue. Yes, a pay equity audit is a good start – as so many legal practitioners have been advising – because the first step in solving a problem is knowing whether one exists. But options and opportunities go well beyond that initial step.

Also, there is the nagging question of whether any of this new legislation actually is addressing the right problem. There is reason to believe it is not, but also options (albeit challenging ones) for how to truly get to the thorny underlying issues. Keep checking with me as we explore those ideas, and please consult employment counsel if you have any questions about how the new hiring laws apply to your organization.

By Tracey I. Levy

Facebooktwitterredditpinterestlinkedinmail
7

October, 2022

NYC Employers May Want to Rethink the Value Cost Proposition of Their AI Hiring Tools

All employers in New York City that rely on artificial intelligence (AI) in their hiring processes are potentially subject to new requirements, beginning January 1, 2023, that they ensure their AI tool has undergone a “bias audit” within the past year, provide advance notice to job applicants regarding the use of the tool, and publicly post on the employer’s website a summary of the results of the most recent bias audit and distribution data for the tool.  The law imposes hefty civil penalties on employers that fail to comply.

For months, employers have viewed this new requirement (the first of its kind in the country) with both puzzlement and foreboding, awaiting further guidance from the city as to what exactly it means by a bias audit and who should be providing the requisite certification.  The New York City Department of Consumer and Worker Protection has issued proposed rules to address those questions, with a public hearing scheduled for 11 am on Monday, October 24, 2022.

The proposed rules are notable in:

  • their definition of when an AI tool (which they refer to as an “automated employment decision tool” or “AEDT”) is subject to the new law;
  • their definition of who needs to conduct the bias audit;
  • what data needs to be analyzed and what information must be posted on employers’ websites; and
  • requirements related to how the data should be posted and additional notices to be provided.

When is the use of an AI tool subject to audit

The proposed rules narrow the scope of covered technology through their definition of an AEDT.  The law states that a bias audit is required whenever an AI tool is used “to substantially assist or replace discretionary decision making.”  The Department of Consumer and Worker Protection is proposing that the standard of substantial assistance or replacement applies in three situations:

  • when the employer relies solely on a simplified output (score, tag, classification, ranking, etc.), with no other factors considered;
  • when an employer uses such a simplified output as one of a set of criteria and weights that output more than any other criterion in the set; or
  • when an employer uses a simplified output to overrule or modify conclusions derived from other factors including human decision-making.

In other words, if the employer is relying on the AI tool to do the heavy lift on screening applicants at any stage of the hiring process, then it will likely need to comply with the bias audit requirement.  If, on the other hand, the AI tool is used more casually, as but one factor for consideration in screening candidates or perhaps to help flag those who may be the best match to the job description, and it carries no more weight than other criteria, then it would apparently fall outside the audit requirement.

Notably, for employers that are dabbling with AI and still relying mostly on human decision-making, as the employer’s AI tool gets “smarter” so to speak and better understands the types of factors it should be looking for when screening applicants, employers that may initially have been exempt from complying with the bias audit requirement will need to revisit that analysis.  Once the tool becomes a relied-upon and predominant factor at any stage of the screening process, the proposed rules indicate that the bias audit requirement will apply.

Who should be conducting the bias audit

The proposed rules state that an “independent auditor” should conduct the bias audit, meaning someone that is not involved in using or developing the AI tool.  This means that even if the employer did not develop the tool, as the user it cannot rely on its own in-house staff to audit the results of the tool for possible bias.  And if the tool is provided by a vendor, then the proposed rules seem to contemplate that the vendor will retain an independent third-party to conduct the audit.

What data needs to be analyzed

The third-party conducting a bias audit is being tasked with calculating two sets of numbers:

  • the “selection rate” – calculated by dividing (1) the number of individuals in a particular gender, racial or ethnic category who were selected to advance to the next level in the hiring process or were assigned to a particular classification by the AI tool by (2) the total number of individuals in that gender, racial or ethnic category who had applied or were considered for the position; and
  • the “impact ratio” – for which the calculation depends on whether the AI tool is being used to select and eliminate people, or whether it is being used to score and categorize them. If the tool handles selections, then the impact ratio is calculated as (1) the selection rate for a specific category divided by (2) the selection rate for the most selected category.  If rating or scoring candidates, then the impact ratio is calculated as (1) the average score of all individuals in a category divided by (2) the average score for the most selected category.

This is fairly standard statistical analysis for claims of adverse impact in employment practices, which is meant to flag employment practices that appear neutral but have a discriminatory effect on a protected group.  The EEOC and other government agencies typically apply a four-fifths rule or 80 percent guideline, whereby an impact ratio of less than 80 percent raises a red flag that there is an adverse impact.  Notably, though, the proposed rules require only that employers post the selection rate/average score and the impact ratio.  Nothing in the law or the proposed rules requires employers to educate job applicants on what the scores mean.

How the data should be posted

Employers are required to make available on their websites:

  • the date of the most recent bias audit;
  • a summary of the results, including selection rates and impact ratios for all categories; and
  • the date the employer began using the AI tool.

The proposed rules require that this posting be clear and conspicuous on the careers or jobs section of the employer’s website, but they allow employers to meet that requirement with an active and clearly-identified hyperlink to the data.

Additional notice requirements

Employers are also required, under the law, to provide candidates with at least 10 business days’ notice that they will be using an AI tool, the job qualifications and characteristics that the tool will assess, and allow candidates to request an alternative selection process or accommodation.  The proposed rules state that this notice can be posted on the employer’s website, included in the job posting, or individually distributed to job candidates.

Finally, employers must additionally provide employees with notice as to the type of data collected by the AI tool, the source of that data, and the employer’s data retention policy.  The proposed rules provide that employers either need to post the information on their website, or post notice to candidates on their websites that the information is available upon written request (and then comply with those requests within 30 days).

Next steps for employers

Employers that would like to comment on the proposed rules can use the contact information in the rules to call or Zoom in.  With the January effective date rapidly approaching, employers should review what AI tools they currently use in their hiring processes and how they are used.  If the tools are provided through a vendor, then the employer should consult with the vendor on whether it has conducted a bias audit and what information it can share as to the results of the audit.  If the employer has developed its own AI tools, it should look for an independent third-party that can perform the requisite selection and impact analysis.  Employers should also plan to make space on their websites for posting the results of their audit and the various notices required under the law.

Flummoxed employers are encouraged to seek legal advice on complying with the new law.  Employers may also want to revisit their hiring processes and determine whether the efficiencies gained through the tools exceed the administrative burdens of the New York City law.  That analysis will differ across industries and organizations.

By Tracey I. Levy

Facebooktwitterredditpinterestlinkedinmail
Back to Top