New Federal Law Bans NDAs in Sexual Harassment Cases

Employers often have an interest in ensuring that details of the workplace do not get out into the general public. Accordingly, they often require employees and other business associates to sign nondisclosure agreements (NDAs) as a condition of working at or with the company. Employees, who want a job, usually do not feel as if they are in a position to say no when their employer makes this request, although some states have outlawed NDAs as a condition of employment.

However, public policy also has an interest in having employees’ voices heard under certain circumstances. With this in mind, Congress has passed a new federal law that will automatically invalidate NDAs in the case of sexual harassment or misconduct at work. Victims will be able to speak out about their experiences, notwithstanding any NDA that they have already signed. And, companies will be prohibited from suing employees who go to the media with their stories under the terms of an NDA.

Non-Disclosure Agreements Are Not Always Favored Legally

Courts will often find a reason to not enforce an NDA. While NDAs are a common tool that employers use to maintain confidentiality about designated topics, in some cases, courts will try to find a way to allow employees to speak, especially when their NDA has harmed their right to earn a living. Nonetheless, there are also situations in which a company has a valid interest in an NDA, especially when trade secrets and corporate processes are involved.

There are times when an employee feels the need to speak out. This is often the case when there are allegations of sexual harassment or misconduct in the workplace. NDAs have been used to prevent employees from speaking out about sexual harassment in the workplace. The #MeToo movement highlighted this issue.

The Speak Out Act Restricts How NDAs Can Be Enforced

Congress recently passed the Speak Out Act, which applies to both non-disclosure and non-disparagement agreements. The legislation was signed into law by President Biden on December 7, 2022. The heart of the legislation is that:

“No nondisclosure clause or nondisparagement clause agreed to before the dispute arises shall be judicially enforceable in instances in which conduct is alleged to have violated Federal, Tribal, or State law.”

The Law Retroactively Invalidates NDAs in Certain Circumstances

The Speak Out Act applies retroactively to all NDAs that were already signed prior to the passage of the legislation. The law makes it illegal to enforce an NDA that would prevent a sexual harassment or assault victim from speaking out about their allegations. The law makes it clear that it applies to any claim that is filed after the date that the bill was signed into law, regardless of when the NDA was dated.

Further, the Speak Out Act does not prevent a state from passing even more restrictive laws regarding the use of NDAs.

Blanket NDAs Are Sometimes Problematic

The legislation does not apply to an NDA that was agreed to after the harassment occurred. Employers may have an interest in keeping certain conduct secret, and they may require that their employees sign an NDA when they settle a sexual harassment claim. In this situation, an employee has the ability to specifically consider whether they want to sign the agreement in light of the behavior that has already occurred and the compensation they’re receiving as part of the settlement. However, the prohibition would continue to apply in the event that the employee signed a blanket NDA before the harassment occurred.

From an employer’s standpoint, the Speak Out Act is another blow against the certainty NDAs can bring. If an employer has required an employee to sign an NDA as a condition of employment, they should not expect that it will always be upheld in court. While employees may be afraid of the potential consequences of violating an NDA, they may have a chance to invalidate theirs if they challenge it in court. Alternatively, they may purposely violate the NDA and dare the employer to file suit.

Employers Can Still Use Non-Disclosure Clauses in Settlement Agreements

Employers who settle sexual harassment allegations should consider the use of an NDA in the settlement agreement if it is consistent with state and federal law. Some states do not allow this, though Texas does not prohibit an NDA that is a part of a contract. Although the alleged victim has a right to speak, the two parties also have the freedom to enter into a contract with each other. For now, Texas law only holds that two parties cannot conceal a public hazard in a settlement agreement.

Companies should consult a labor and employment attorney at the first moment an employee alleges they were the victim of sexual harassment. Texas has recently enacted robust laws concerning sexual harassment in the workplace in the wake of the #MeToo movement.

Although a company wants to protect its reputation, there are things it can do that could make its situation worse. If a company is perceived to be covering something up, the public could react far more harshly should details come to light. This is not to say that companies cannot do everything in their power to secure confidentiality, especially if they are paying out money in a settlement agreement. The company has its own legal rights to protect, notwithstanding any allegations made against it.

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