Legal Limitations on Non-Disclosure Agreements

An area of the law that is changing quickly is the use of non-disclosure and confidentiality agreements. Employers most often use NDAs to protect company trade secrets and proprietary information. But some employers also use them to prohibit employees from disclosing unlawful employment practices that they have observed or to which they have been a victim. It is this use of NDAs which new laws across the country are targeting. Because many states have limitations on NDAs, it is important for employers to be aware of state-specific restrictions when using these agreements.

Where Are Non-Disclosure Agreements Used?

• Pre-dispute NDAs may be used in an employment contract or in a stand-alone NDA agreement that an employee signs at the beginning of employment.
• Post-dispute NDAs are contained in a settlement agreement after an employee has filed a claim against the employer.

NDAs that prohibit the disclosure of facts related to claims of sexual harrassment and discrimination in the workplace have come under fire recently in correlation with the #MeToo movement; because of that, some states are passing laws to limit the use of NDAs. These limits on NDAs are notable because companies are used to operating in a legal landscape where one benefit of settling a sexual harassment claim is knowing that the details of that claim will not become public. However, the tendancy of those provisions to perpetuate sexual harassment in the workplace has been problematic, so states are taking action to limit the use of NDAs in the workplace.

It may be alarming for employers to hear that the use of NDAs is coming under fire, but employers can rest easy knowing that these laws do not place an outright ban on NDAs. They do not limit an employer’s ability to prohibit employees from disclosing company trade secrets or proprietary information. The purpose of these laws is to protect the victims of harrassment and discrimination.

States limiting NDAs have taken two broad approaches in doing so: some states limit NDAs with respect only to sexual harrassment/abuse claims. Other states limit NDAs related to all workplace discriminiation claims of any protected class like race, sex, religion, national origin, etc.

Common exceptions to these laws permit non-disclosure agreements to be used if the claimant requests an NDA in order to keep their identity confidential; similarly, some laws allow for the settlement amount to remain confidential.

States with Limits on NDAs

• California – Pre-dispute: can’t deny right to disclose information regarding “unlawful acts in the workplace.” Post-dispute: can’t prevent the disclosure of facts regarding any discrimination, harassment, or retaliation claim or information regarding unlawful acts in the workplace. Exceptions: (1) claimant’s identity, upon request, (2) settlement amount, (3) as part of a negotiated settlement agreement.
• Illinois – Pre-dispute: can’t prevent employees/applicants from making truthful disclosures regarding unlawful employment practices. Post-dispute/separation: can’t require confidentiality regarding alleged discrimination, harassment, retaliation. Exceptions: for both, an NDA is permitted if the agreement is truly mutual and negotiated and meets several strict requirements under the law.
• Nevada – Pre- and post-dispute: can’t prohibit testimony regarding criminal offense, sexual harassment, or discrimination (any protected category), or retaliation. Post-dispute: can’t prohibit disclosure of factual information regarding sexual offense or sex discriminiation. Exceptions: claimant’s identity, upon request.
• New Jersey – Pre- and post-dispute: can’t prohibit disclosure regarding a claim of discrimination, harassment, or retaliation. NDA is only enforceable against the employer, unless the employee publicly reveals details that lead to identification of the employer. Exceptions: non-competes, proprietary information, trade secrets.
• New York – Pre-dispute: can’t prohibit the disclosure of future discrimination claims unless the employee is informed that the NDA doesn’t prohibit cooperation with a government agency investigating unlawful employment practices. Post-dispute: NDAs prohibited in all discrimination, harassment, retaliation settlements. Exception: upon claimant’s request. Any NDA must meet strict requirements regarding a non-waivable review/revocation period.
• Tennessee – Pre-dispute: can’t require “employee or prospective employee to execute or renew a [NDA] with respect to sexual harassment in the workplace as a condition of employment.” Post-dispute: no limitations (unless government agency).
• Vermont – Pre-dispute: can’t prohibit employee from opposing, disclosing, reporting, or participating in an investigation of sexual harassment. Post-dispute: sexual harassment settlement can’t prohibit complaint to state agency or participation in investigation/discovery, can’t waive future claims. The Vermont law also places a ban on rehire agreements.
• Virginia – Pre-dispute: can’t prohibit disclosure of facts related to sexual assault claims. Post-dispute: no limitations.
• Maryland, New Mexico, Oregon, and Washington also have limits on NDAs.

Best Practices

This is a rapidly evolving area of the law. It is important for companies to comply with the laws of every state where they have employees.

• Keeping employment agreements like NDAs up to date is especially difficult for companies with remote workers spread among several states. Employers should make sure their employee contracts and NDAs do not include any language that is prohibited under applicable state laws.
• Employers who do not have employees in states with limits on NDAs should review their NDAs to make sure they couldn’t be interpreted as prohibiting an employee from filing an employment claim with the Equal Employment Opportunity Commission or equivalent state agency, or from testifying or participating in an investigation of an employment claim.
• From the perspective of recruiting, diversity, equity, and inclusion: employers who operate in a state with no limits on NDAs should consider including language in their NDAs that aligns with the states who do have limits. Especially for use in a sexual harassment situation, this shows that the company is attempting to be a good actor in that space.

SixFifty Solutions

SixFifty can help! Our Employment Agreements toolset helps companies to create customized contracts, policies, and documents that comply with all state and federal employment laws. We are continuously monitoring this dynamic area of the law and updating our tools with changes in real time. We send regular updates explaining how laws have changed, and we even include the recommended language for the agreements.

If you are ready to get started or have any questions, schedule a demo with SixFifty today!