New State Laws Restrict Nondisclosure and Nondisparagement Agreements

Leah Shepherd By Leah Shepherd August 31, 2022
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​It's common for employers to require employees to sign nondisclosure and nondisparagement clauses during hiring, in severance agreements and in legal settlements. But employers and HR professionals need to be careful that these clauses don't violate new state laws.

Maine, Oregon and Washington are the latest states to restrict how employers can use those types of contracts. Other states such as California, Illinois, New Jersey and New York also have similar laws. Many of these state laws were passed in the wake of the #MeToo movement in order to prevent companies from covering up sexual harassment and sex discrimination by executives and supervisors.

"Since the #MeToo movement started in 2017, there have been several states that have passed laws restricting the use of confidentiality and nondisparagement agreements in employment, and I expect this trend will continue," said Jim Morrison, an attorney with BakerHostetler in Seattle.

"Before these types of laws came into effect, the worst-case scenario of a poorly constructed nondisclosure or nondisparagement provision was that it would not be enforceable," he added. "Now, requesting that an employee sign such an agreement can expose the company to liability."

A nondisclosure agreement, also called a workplace confidentiality agreement, is a legally binding contract in which one party agrees to give a second party confidential information about its business or products, and the second party agrees not to share this information with anyone else for a specified time period. Nondisparagement agreements bar employees or former employees from saying anything negative about the company or its products, services or leaders in any form of communication.

"This is only the tip of the iceberg. There's going to be many more legislative developments at both the federal and state level. What they're trying to do is bring daylight to compromising situations," said Gregory Hare, a lawyer with Ogletree Deakins in Atlanta.

"The idea is that widespread scandals will not proliferate so much if there is sunshine and things are not cloaked in secrecy," he added.

State Laws Differ

The state laws vary in their scope and the exceptions allowed. 

Washington's Silenced No More Act, which Gov. Jay Inslee signed March 24, prohibits employers from requiring or requesting that workers sign nondisclosure or nondisparagement agreements that restrict workers' right to discuss illegal discrimination, harassment, sexual assault, retaliation, wage and hour violations, or any other violations of public policy.

Oregon Gov. Kate Brown signed a new law on March 24 that modifies Oregon's Workplace Fairness Act. The new provisions bar nondisclosure and nondisparagement agreements that preclude employees from talking about instances of illegal discrimination or sexual assault.

"HR professionals must make a threshold factual determination about whether the employee being asked to sign a severance agreement has previously complained about discrimination in the workplace," said Mark Crabtree, an attorney with Jackson Lewis in Portland, Ore. "If there were prior complaints, employers cannot insist on including the traditional terms [in their agreement]. That change impacts the process for how HR professionals structure agreements and how those agreements are presented to employees."

Under Maine's law, employers cannot make employees stay silent about discrimination or harassment. Maine also bans nondisclosure agreements and nondisparagement agreements that:

  • Restrict employees' right to report, testify, or provide evidence to a federal or state agency that enforces employment or discrimination laws.
  • Prevent employees from testifying or providing evidence in federal or state court.
  • Prohibit employees from reporting illegal conduct to a law enforcement agency.

In addition, Maine's law clarifies that its restrictions do not apply to nondisclosure agreements protecting the confidentiality of a company's proprietary information and trade secrets.

The laws in Maine and Washington allow employees to request that certain information be included in a nondisclosure agreement. Oregon employees have seven days to revoke the agreement after signing it.

The penalties for noncompliance are different in each state.

"For remedies, Washington allows employees to bring a civil action for the greater of actual or statutory damages of $10,000, plus reasonable attorney fees and costs," Morrison said. "The new Oregon law will allow for a civil action with a penalty of up to $5,000 and the ability to recover compensatory and punitive damages. The prevailing party also may recover reasonable attorney fees. Maine does not provide for a civil action, but employees may file a complaint with the Department of Labor and seek remedies through that process."

Multistate Employers

Multistate employers that previously used standard contracts nationwide can't do so anymore.

"Do not just use a national template agreement without considering local laws. In particular, be careful in settlement negotiations," Morrison cautioned. "Before you ask your counsel to request a confidentiality or nondisparagement agreement in settlement negotiations, ask them to confirm whether there are any restrictions on such agreements in the local jurisdiction."

In the future, state laws might have an impact on which claims get settled and which don't.

"One question that remains to be answered is what impact these new laws will have on employers' willingness to settle employment claims, particularly before an employee files a lawsuit," Morrison stated. "Employers are deeply concerned with their reputations, and a key factor in deciding to settle cases before litigation has been the ability to keep claims confidential. Employers may be more willing to litigate cases, particularly those they view as meritless, if they are not able to get confidentiality or nondisparagement terms to protect their reputations."

"It changes the settlement calculus," Hare stated. "Maybe fewer cases will settle."

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