The Truth About Nondisclosure and Nondisparagement Clauses
NEWSLETTER VOLUME 2.4
|January 29, 2024
The Truth About Nondisclosure and Nondisparagement Clauses
In 2021, California first restricted nondisclosure and nondisparagement clauses in discrimination and harassment settlements (Gov't Code §12964.5). Since then, multiple states have enacted similar laws. In 2023, the NLRB said these provisions violate the NLRA unless they are for a limited time and only preclude statements that are defamatory (i.e., both negative and untrue). New York just revisited its law on employment agreements too. See the great article below.
You might be wondering why we have these provisions and why they're becoming illegal some places. I love this question! Here's why.
By the time you get to a settlement, all the employee wants is to move on with their life in peace. All the employer wants is final closure and protection from having to explain it—to candidates, clients, the Street.
So, employers put clauses in the severance or settlement agreement that require the employee to keep everything about their claim secret (nondisclosure or confidentiality clauses) and to never say bad things about the employer (nondisparagement clauses).
That's why there are nondisclosure and nondisparagement clauses in employment agreements.
The other thing is that there's almost no situation that litigation can't make worse. Even when the parties agree to settle, any semblance of trust, respect, or compassion is long gone for everyone involved. You've just spent months, sometimes years, fighting. By the time it's over, you hate each other.
It's not anyone's fault. It's the system.
When an employee complains, immediately the employer changes its view of the employee from a valued teammate to a threat. There is an investigation where managers protect each other and employees protect themselves and their jobs. It's us v. them.
When you have an adversarial framework, the goal becomes to win instead of to solve the problem.
For the employer, winning means silencing the employee. This is especially true when the allegations turn out to be true.
But allowing employers to use their significant resources and power to silence an employee who stood up for their legal rights does not exactly promote the public policy and laws requiring discrimination and harassment free workplaces. When employers can control the consequences of breaking the law and causing harm to the people the laws are designed to protect, the risk of violating it is significantly reduced. The effect of secrecy is to implicitly encourage harassment and discrimination.
That's why legislatures are making laws prohibiting nondisparagement and nondisclosure provisions in employment settlement agreements.
And the real truth is that employees rarely tell the world about their horrible former employers. It's much harder to get the next job when you do. By the time it's over, most employees aren't interested in staying mentally and emotionally stuck in the past. They're full. They just want to heal and move forward.
What about the ones who aren't? Well, there is no contractual provision that will stop those ones from telling everyone everything, including the stuff they make up in the dramatic retellings.
More importantly, the last thing the employer wants to do is file a lawsuit to enforce the agreement. You can't enforce these provisions without repeating exactly how the employee violated them. The employer ends up airing their own dirty laundry in the public record.
And that's why getting rid of nondisparagement and nondisclosure clauses in employment agreements is a good thing for everyone.
Wouldn't it be better if organizations solved the problem and terminated the people who are discriminating against and harassing their teammates? Then, they don't have to worry about what people are saying about them. They have complied with their legal and ethical obligations to provide a discrimination and harassment free workplace and demonstrated that they mean it.
It's also way less expensive.
Here's the full story on New York's new law on employment settlement and severance agreements.
With the New Year in full swing, it is important for New York employers to be aware of recent changes to New York’s statutes relating to severance agreements.
On November 17, 2023, New York enacted S4516, which provides amendments to Section 5-336.
Before the amendment, Section 5-336 restricted certain terms from being included in release agreements involving claims of discrimination. However, S4516 expands that coverage to cover not only discrimination claims but also claims involving “discriminatory harassment and retaliation.”
S4516 also provides that “no release of any claim, the factual foundation for which involves unlawful discrimination, including discriminatory harassment or retaliation,” shall be enforceable if the agreement “resolving such claims” includes:
- Liquidated damages for the employee’s violation of a nondisclosure or non-disparagement provision;
- The employee’s forfeiture of all or part of the consideration of the agreement due to a violation of a nondisclosure or non-disparagement provision; or
- An affirmative statement, assertion, or disclaimer by the employee that the employee was not subjected to unlawful harassment, discrimination, or retaliation.
Finally, S4516 revises 5-336’s review and revocation period. As a reminder, Section 5-336 prohibits employers from requiring a nondisclosure provision in a release agreement involving claims of discrimination, unless (1) confidentiality is the employee’s preference, and (2) the employee is given 21 days to consider the agreement and 7 days to revoke. However, Section 5-336 previously required the employee to wait a full 21 days before they could sign the agreement. Now, S4516 states that a 21-day consideration period is waivable – mirroring the ADEA’s requirements. Understand, though, that this change does not affect New York City rules which retain that an employee must wait the full 21 days to sign a nondisclosure agreement after a discrimination claim has already been filed in court.
With these changes, it is important that New York employers revisit their severance agreements and settlement agreements to ensure they are in compliance with S4516.
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