Nondisclosure Agreements May Not Cover Sexual Misconduct Claims

​Editor's Note: President Joe Biden signed the Speak Out Act on Dec. 7. 

Employers may need to reconsider how they use nondisclosure agreements (NDAs) in the wake of recent congressional action and new state laws.

The U.S. House of Representatives on Nov. 16 passed the Speak Out Act, which prohibits the use of nondisclosure and nondisparagement agreements in cases of sexual harassment or sexual assault. The bill passed the Senate on Sept. 29.

The Speak Out Act applies only to contracts signed before a dispute arises, not afterward, and does not cover other workplace misconduct, such as age or race discrimination.

The bill now heads to President Joe Biden, who has expressed support for its passage. Earlier this year, Biden signed a law to ban forced arbitration in cases involving sexual harassment or sexual assault.

"The consistency of nationwide application should make the law more forceful and give it more cultural buy-in at every level within corporations," said Kenya Davis, an attorney with Boies Schiller Flexner in Washington, D.C.

In recent years, it's become more common for employers to require workers to sign nondisclosure agreements when they are hired, accept a severance payment or reach a settlement in a lawsuit.

"NDAs are meant to settle such disputes with provisions that the matter will be kept confidential to avoid bad publicity, but companies no longer have this cushion to rely on," said Stephen Paskoff, CEO of Employment Learning Innovations in Atlanta and a former investigator with the U.S. Equal Employment Opportunity Commission.

Preventing Cover-Ups

The Speak Out Act is similar to state laws passed recently in California, Illinois, Maine, New Jersey, New York, Oregon and Washington. The purpose is to allow victims of sexual harassment and assault to speak publicly about it in order to stop perpetrators from continuing to harm people.

"Workers should not be silenced in the face of workplace sexual harassment and assault or face retaliation for coming forward to report such abuse," a policy statement from Biden's office said. "Transparency is the best way to hold employers and perpetrators accountable. Prohibiting the use of pre-dispute NDAs and nondisparagement clauses will increase access to justice and make the workplace safer for everyone."

"If victims feel comfortable making disclosures in light of this legislation that governs NDAs that are only signed pre-litigation, then it may prevent others from being abused by the same bad actor. But this is only true if the company actually acts on the disclosure and removes that bad actor," Davis said. "It only works if there is a real and robust system for reporting and remedy."

It's unclear what the legal penalties would be for employers that violate the Speak Out Act, if it's signed into law.

"The actual penalties remain to be seen, but the consequences for organizations that do not do enough to prevent harassment in the first place are extraordinary, including increased legal risk and lasting brand damage," Paskoff said.

Illegal Conduct

Under federal law, it's illegal to harass a person because of the individual's sex. Examples of unlawful conduct include unwelcome sexual advances, requests for sexual favors, and repeatedly making offensive remarks about a person's gender or attractiveness.

The U.S. Equal Employment Opportunity Commission reported that 5,581 sexual harassment charges were filed in 2021, down from 7,609 in 2018. Women filed 78 percent of the sexual harassment charges from 2018 to 2021. At least 81 percent of women and 43 percent of men reported experiencing some form of sexual harassment or assault in their lifetime, according to a 2018 survey from Stop Street Harassment.

"Over one-third of the U.S. workforce is bound by NDAs, even as one-in-three women report having faced sexual harassment in the workplace, and members of marginalized and underserved communities, including people of color, low-wage workers and LGBTQI+ individuals, are disproportionately impacted by workplace sexual harassment," said Biden's policy statement.

It's helpful to frequently remind employees that an organization's anti-harassment policy is tied to corporate values like respect, fairness and inclusion, Paskoff said.

"One-time trainings or issued statements are not enough to prevent bad behavior before it takes place and gets out of hand," he added. "Company standards and values need to be consistently reinforced, as check-the-box trainings do not clear companies from liability or prevent issues entirely."

A company's brand and reputation are at stake when allegations of workplace sexual harassment occur. "The public is sensitive to what employers do and how they not only react but also how they take proactive measures, highlighting how this is not just a legal issue, but also a potentially detrimental branding issue," Paskoff said. "This can put employers in a quandary when it comes to managing issues that arise after harassment occurs, but employers should want to learn about issues sooner to address and fix them."

Internal investigations of misconduct should be swift, decisive and public, at least within the organization, to send a clear message to potential offenders, Davis said.

"It never ceases to amaze me that every time we uncover one of these cases, people come out of the woodwork saying that they knew the offender was known for being inappropriate and sexually suggestive, and he or she was tolerated. The bad behavior that is tolerated makes victims silent and perpetrators and their enablers bold," she added.