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Spotlight back on NDAs as new campaign aims to abolish “toxic” agreements
16/09/2021
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John VDLD
John van der Luit-Drummond is editor of International Employment Lawyer

Non-disclosure agreements (NDAs) are back in the spotlight this week after Conservative MP Maria Miller introduced a 10-minute-rule bill in the UK parliament aimed at stopping the “malicious” use of NDAs to cover up illegal activity by employers and discrimination against employees.

“When used unethically, NDAs are catastrophically damaging to innocent parties, and immoral because they are being used as safety nets for employers to routinely cover up abuses without consequence,” said Miller, who, in 2018 and 2019, chaired the Women and Equalities Select Committee tasked with investigating sexual harassment in the workplace and non-disclosure misuse.

“The evidence also shows it takes a huge personal toll on victims, leaving them emotionally and psychologically drained, disillusioned, and left with a total loss of faith in the legal system. This is an injustice twice over.”

Miller added that her private members’ bill, introduced on 14 September, would prevent organisations acting unlawfully and compel companies “to deal with discrimination and other abuses more ethically, rather than impose silence on innocent victims who have been wronged”.

The Basingstoke MP has joined forces with the new “Can’t Buy My Silence” (CBMS) campaign, which aims to stop the misuse of NDAs by demanding new laws to stops gag orders from being used in workplaces and other institutions around the globe.

The campaign is the brainchild of co-founders Zelda Perkins, a former Miramax employee and the first woman to break an NDA exposing the actions of disgraced Hollywood mogul Harvey Weinstein, and Canadian law professor and whistleblower Dr Julie Macfarlane.

“Until these types of toxic NDAs are abolished, victims of sexual harassment, bullying, and other wrongdoing will continue to be silenced,” said Perkins. “I know from my own experience and the hundreds of people that have reached out to me, the devastating impact NDAs can have on the mental, physical, and professional wellbeing of victims.

“The cascade of wider social implications makes this issue something that lawmakers and regulators cannot continue to ignore and must be stopped.”

A survey by the group Speak Out Revolution, which has partnered with the CBMS campaign, found that 22% of reports of workplace harassment, bullying, and discrimination are tied to an NDA. Nine in 10 individuals who signed an NDA said it impacted their mental health, further research found.

Despite cross-party support and successive government consultations, UK ministers have yet to bring forth legislation banning NDAs or providing employees with additional protections, such as a right to receive legal advice before entering into any confidentiality agreements.

A government report from March 2019, proposed a new law restricting the use of gagging agreements to ensure employees “cannot be prevented from reporting crimes, harassment, or discrimination to the police”.

In June of the same year, the Women and Equalities Committee recommended outlawing the use of NDAs in cases of discrimination. Solicitors in England and Wales have also been warned that they face regulatory censure if the creation or enforcement of NDAs breach their ethical obligations.

Pressure against the use of NDAs continues to grow around the globe, thanks to the #MeToo movement’s ongoing success in shining a light on clauses that silence victims of inappropriate workplace behaviour.

In 2018, Australia was one of the first countries to launch an independent inquiry into workplace sexual harassment. As with many northern hemisphere nations, Australia has had its fair share of sexual harassment scandals, which has led to a group of senior corporate leaders recently calling for a complete overhaul of how top-listed companies handle harassment claims.

Australia’s parliament is currently debating the Respect at Work Act which incorporates several recommendations from the Respect@Work Report published by the Australian Human Rights Commission.

In Ireland, new legislation to ban NDAs was introduced on 3 June 2021. Under the Employment Equality (Amendment) (Non-Disclosure Agreement) Bill, which has cross-party support, NDAs would be banned unless requested by the victim to protect their own confidentiality. A similar bill is expected to be introduced into Canada’s federal senate after the recently announced federal election is completed.

In the US – where non-disparagement clauses routinely prevent workers from making negative comments about their employers – several states, including Arizona, California, Illinois, Maryland, New York, New Jersey, Nevada, Oregon, Tennessee, Vermont, Virginia, and Washington, have already passed laws to limit the use of NDAs in sexual misconduct cases. 

Legislators in California have gone further, however. First, by amending the state’s Code of Civil Procedure to prohibit any provision in a settlement agreement that prevents the disclosure of factual information regarding sexual misconduct. Then, on 26 August 2021, the state’s Senate passed the “Silent No More” Bill, further extending the legislation to include racial harassment and discrimination.

Many companies, and their legal advisers, will continue to advocate for the use of NDAs as an important tool in the protection of business assets. Broader use of NDAs covering not just trade secrets and intellectual property, for example, is becoming harder to justify. And amid the current political climate, the use of all-encompassing NDAs poses a great risk to an organisation’s brand and reputation.

 

The Weinstein effect stateside
Melinda Riechert is a partner at Morgan Lewis & Bockius
Following the exposure of Harvey Weinstein’s sexual harassment of women, and the fact that he had entered into settlement agreements with some of the women who had accused him of sexual harassment, binding them to strict confidentiality regarding the allegations against him, some US states passed laws limiting the ability of employees to enter into agreements that required them to keep confidential the facts giving rise to their claims of sex harassment and sex discrimination.
For example, in California in 2018, California passed three laws on the subject:
- First, for current employees SB 1300 prohibits an employer, in exchange for a raise or bonus, or as a condition of employment or continued employment, from requiring the execution of a release of a claim or right under California’s Fair Employment and Housing Act (which covers claims of discrimination, harassment and retaliation) or from requiring an employee to sign a non-disparagement agreement or another document that purports to deny the employee the right to disclose information about unlawful acts in the workplace, including, but not limited to, sexual harassment. There is an exception for a “negotiated settlement agreement” (as defined).
- Second, AB 3109 made void any provision in a contract or settlement agreement that waives a party’s right to testify in an administrative, legislative, or judicial proceeding concerning alleged criminal conduct or sexual harassment when the party has been required or requested to attend the proceeding pursuant to a court order, subpoena, or written request from an administrative agency or the legislature.
- Third, SB 820 prohibits settlement agreements that require non-disclosure of factual information relating to certain claims of sexual assault, sexual harassment, sex discrimination, and retaliation that had been raised in a civil or administrative action. It allows for provisions that shield the claimant’s identity and facts that could lead to the discovery of that identity, so long as the claimant requests the provision be included, and does not prohibit provisions that preclude disclosure of the amount paid in settlement.  
SB 820 only covered sexual assault, discrimination, harassment, or retaliation claims. There is currently a bill on the desk of California Governor Newsom, SB 331, called the “Silenced No More Act”, that would expand SB 820 to other forms of discrimination and harassment, including race, disability, or age.
Federal Law 26 U.S.C. 162(q) prohibits employers from deducting from their taxes the cost of settling sex harassment claims, including attorney fees paid and the amount of the settlement, if there is a confidentiality provision in the settlement agreement.
Companies should seek legal advice when drafting NDAs that may limit an employee’s ability to discuss facts underlying sex harassment or other claims.