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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

 

 

 

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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

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