NDAs: Boon or Bane?

Jathan Janove, J.D. By Jathan Janove, J.D. February 18, 2020
hand signing contract

​When I litigated employment law claims, nondisclosure agreements (NDAs), which often included nondisparagement clauses, were standard settlement fare. Often, plaintiff's attorneys would use the employer's desire for an NDA to leverage additional settlement dollars. And as a defense attorney or mediator, I often used NDAs to help persuade the employer to up the ante and get the case settled. 

Negotiations over NDAs sometimes became contentious. However, I never had a settlement break down solely because of the NDA. At the time, I considered the NDA a useful claim resolution tool.

Looking back through the lens of #MeToo, though, I now wonder. In trying to solve claims efficiently, did I enable bad actors?

I dealt with numerous sexual harassment claims, including some that involved real predators. In most cases, the predator was fired. However, sometimes when the harasser was considered a star employee, he received disciplinary action short of discharge. Sometimes that star again misbehaved and was subsequently fired. On the other hand, in many cases, NDAs helped prevent or put an early end to what would otherwise be emotionally and economically exhausting litigation.

But now I wonder if, societally, NDAs do more damage than good. Even in the cases where the harasser is fired, perhaps the NDA makes it easier for that person to repeat his behavior in a new workplace.

You probably know of former television host Gretchen Carlson, who settled her sexual harassment case against 21st Century Fox and its former chairman and CEO Roger Ailes. The settlement included an NDA barring her from sharing details of Fox's harassment problems.

With two other former Fox News colleagues who also sued Fox, Carlson has since formed the nonprofit Lift Our Voices. She describes its mission as "lifting the veil of secrecy and providing a voice to survivors by putting an end to forced arbitration, mandatory nondisclosure agreements (NDAs), and confidentiality provisions in employment-related incidents of workplace toxicity, including sexual harassment, retaliation, and gender discrimination."

Carlson, who says she asked Fox to release her from her NDA but received no response, describes NDAs as "the harasser's best friend." She asserts that they "keep women silent about the toxic work environment they experienced and prevent an open dialogue about how to fix the problem of workplace harassment." Her organization supports a recent New Jersey law as a model for new state and federal legislation.

A contrasting view comes from New Jersey employment law attorney Steven Suflas. "Ninety-seven percent of all litigated cases settle short of trial. In my experience, in the overwhelming majority, management believes they have done nothing wrong, and the case settles simply to avoid the transactional costs of the litigation process.

"The recent New Jersey legislation banning nondisclosure agreements in a settlement will likely lead to more cases being tried. Nuisance value settlements especially will be adversely affected, as an employer paying off a disgruntled employee to end a baseless lawsuit would not want to also face adverse publicity arising from insubstantial claims."

Suflas believes that courts are not prepared to handle what he predicts would be an "avalanche of employment cases, as fewer settle and more proceed to trial."

Michael O'Brien, an employment law attorney in Salt Lake City, offers another view. "I think it is difficult to conclusively say that NDAs do more harm than good. None of us want to be harassment facilitators or cover up bad behavior. However, not all cases are clear cut, and, in some instances, a case may not settle at all without an NDA. Settlement often is a good thing not just for the company, but also for the employee who can move on—with some compensation—with her/his life, and for the judicial system, which can devote its scarce resources to other cases."

Carlson believes the attorneys' analysis misses a fundamental point. "NDAs support the current approach: pay the victim to leave, get a release and an NDA." Carlson said that "a much better approach would be to allow women to stay working after they come forward and not automatically go to the old-school protocol of getting rid of them with a settlement and NDA." If employers take this approach, Carlson predicts "there won't be the need for all of these settlements and NDAs."

From an HR professional's perspective, what's your view? I'd love to share your response in a subsequent column. Contact me and let me know what you think about NDAs.

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