State Bans on Non-Disclosure Agreements in the Workplace

August 23, 2022

Workplace discrimination and harassment complaints are often resolved through private settlement agreements that include non-disclosure or non-disparagement provisions. In addition, many employers include such provisions in their standard employment agreements. In recent years, several states have enacted laws designed to prohibit or limit the use of such provisions. In June 2022, Washington State passed one of the broadest statutes governing these issues, as compared to California, New York, and New Jersey, each of which has enacted laws limiting the provisions in recent years.

Background on Non-Disclosure and Non-Disparagement Provisions in Employment Agreements

Before discussing these laws, we will briefly explain the nature of non-disclosure and non-disparagement provisions in employment contracts or settlement agreements. Non-disclosure provisions prevent employees who sign these agreements from sharing information with any third party, often with exceptions for a small subset of individuals, usually the employee’s spouse, mental health professionals, and tax, legal, and financial advisors. In the case of settlement agreements where an employee has asserted employment-related claims, the information that cannot be shared under a non-disclosure provision typically includes both the terms of the agreement and any information related to the employee’s claim. Non-disparagement provisions, whether in an employee handbook, contract, or settlement agreement, prohibit an individual from publicly making any disparaging statements about the company. What constitutes “disparaging” is often defined in the agreement or by the state-specific case law, but it generally means any comment that would reflect negatively on the company. Both non-disclosure and non-disparagement provisions have been used in some cases to silence employees in exchange for resolving their claims, even when some employees would prefer to preserve their right to speak out about their workplace experience. In response to these concerns, state legislatures have taken different approaches to limit or prohibit the use of these provisions in employment contracts and settlement agreements.

Differences in the Employment Laws Among States

Effective June 9, 2022, the Washington State Legislature enacted the Silenced No More Act. Engrossed Substitute House Bill 1795, codified as Wash. Rev. Code § 49.44.211. The Legislature stated that this new law serves Washington State’s “strong public policy in favor of disclosure” and is “to be liberally construed to fulfill its remedial purpose.” The Act renders “void and unenforceable” agreements between employers and employees “not to disclose or discuss conduct, or the existence of a settlement involving conduct, that the employee reasonably believed under Washington state, federal, or common law to be illegal discrimination, illegal harassment, illegal retaliation, a wage and hour violation, or sexual assault, or that is recognized as against a clear mandate of public policy[.]”  § 49.44.211(1). The law covers not only conduct that occurs at work, but also conduct that occurs at work-related events coordinated by or through an employer, between employees, and between an employer and an employee, whether on or off the employment premises. “Employee” is also defined broadly and includes a “current, former, or prospective employee or independent contractor.”  § 49.44.211(8). Including independent contractors in the statute ensures that workers without a formal employee-employer relationship remain protected by the law. The law prohibits the use of non-disclosure and non-disparagement provisions in almost any employment contract, as well as in settlement agreements involving the release of legal claims.

In addition to allowing employees to make such disclosures, the law also protects them from retaliation should they choose to do so. Employers are prohibited from retaliating against employees who disclose or discuss conduct that is otherwise protected by the law. Wash. Rev. Code § 49.44.211(3). For violations of the law, employers face potential liability for actual or statutory damages of $10,000, whichever is greater, as well as reasonable attorneys’ fees and costs. § 49.44.211(7). The law applies retroactively in limited circumstances. It expressly does not apply retroactively to settlement agreements signed prior to the effective date. However, it does operate retroactively to invalidate non-disclosure and non-disparagement provisions in agreements entered into “at the outset of employment or during the course of employment.”  § 49.44.211(11).

While Washington’s law was modeled after California’s analogous law, the California legislature had originally taken a more nuanced approach. In 2018, California enacted the Stand Together Against Non-Disclosure (STAND) Act, SB-820, a piece of legislation passed during the height of the #MeToo movement. The STAND Act prohibited the use of settlement agreements to prevent employees from disclosing factual information underlying a complaint filed in court or before an administrative agency about specific acts, which included sexual assault, sexual harassment, workplace harassment or discrimination based on sex, failure to prevent such an act, or retaliation against a person for reporting such an act.

In 2021, California’s Silenced No More Act, SB-331, expanded the scope of the STAND Act. SB-331 prohibited employers from restricting an employee’s disclosure of factual information related to claims filed before a court or administrative agency that pertained to any workplace harassment or discrimination claim, not just sex-based claims. Cal. Civ. Pro. Code § 1001(a). SB-311 further prohibited employers from requiring employees to sign an agreement that would restrict an employee’s ability to disclose information related to unlawful acts in the workplace. Cal. Gov’t Code § 12964.5(a)(1)(B)(i). It also prohibited employers from including such restrictions in an employee’s separation agreement. § 12964.5(a)(2)(b(1)(A). There is a significant carve-out in the California law, which does not exist in the Washington law. The California law expressly excludes “negotiated settlement agreements” resolving legal claims filed in court, before an administrative agency, in an alternative dispute resolution forum, or through an employer’s internal complaint process. § 12964.5(d)(1). The statute explains that “negotiated” means that “the agreement is voluntary, deliberate, and informed, the agreement provides consideration of value to the employee, and that the employee is given notice and an opportunity to retain an attorney or is represented by an attorney.”  § 12964.5(d)(2). In summary, an employer is permitted to include a non-disclosure and non-disparagement provision in a negotiated settlement. However, an employee can still disclose “factual information” about specific acts underlying their employment claims filed in court or before an administrative agency, even if those claims are part of a negotiated settlement.

New York State took a slightly different approach from that taken by either Washington or California. New York’s law, which became effective on October 11, 2019, prohibits employers from requiring employees to enter into non-disclosure provisions as a condition of settlement “unless the condition of confidentiality is the [employee’s] preference.” N.Y. Gen. Oblig. Law § 5-336(1)(a). Prohibitions on disclosure pertain only to the “underlying facts and circumstances to the claim or action.”  Id.

In 2019, New Jersey passed a narrow version of this type of legislation, as compared to other states. The New Jersey law provides that non-disclosure provisions in any employment contract or settlement agreement that conceal the details relating to a claim of discrimination, retaliation, or harassment shall be “deemed against public policy and unenforceable against a current or former employee … who is a part to the contract or settlement.” N.J.S.A. § 10:5-12.8(a). A New Jersey Appellate Court further narrowed this statute when it held that the law does not prohibit non-disparagement provisions. Savage v. Township of Neptune, 279 A.3d 685, 694-95 (N.J. App. Div. 2022). The court nonetheless held that, while the non-disparagement provision was enforceable, the plaintiff in that instance did not violate the provision. Id. at 699.

Conclusion

The push continues in some state legislatures to provide for some limitation on the use of non-disclosure and non-disparagement agreements in the workplace. The motivations for the laws—preventing the silencing of victims of unlawful discrimination and increasing accountability for those who engage in such misconduct—are undoubtedly important and admirable. For now, it remains to be seen how courts will interpret and apply these laws and what impact they will have on employers’ willingness to resolve employment claims outside of litigation.

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