New California laws frown on Secret Settlements
Confidentiality clauses of one sort or another have been ubiquitous in the workplace for years. They are found in employment contracts, severance agreements, proprietary information agreements, and stand-alone non-disclosure agreements. Some require the employee to keep the terms of any settlement confidential. Others are limited to the protection of trade secret information, or purport to preclude the employee from making disparaging comments about the employer after she leaves employment. And some commit an employee to silence about events in the workplace, including facts surrounding alleged misconduct like sexual harassment.
That is about to change. On January 1, forget everything you think you know about non-disclosure agreements in California. The law is set to undergo a shift as the result of three pieces of legislation that come into force after the new year.
But first, let’s take a moment to figure out how we got here. For the last year and a half, the global community has been rocked by the #metoo movement. Misbehavior that was tolerated or brushed under the rug has been exposed. Women and their allies in the workplace have mobilized to change the social expectations and legal paradigms that govern workplace misconduct, including sexual harassment.
Here in California, the state legislature has passed, and the governor has signed, a trio of bills that will reshape how allegations of workplace sexual harassment are handled. The legislation draws its inspiration from the first principle of the #metoo movement: the ability to say “me too”—to share one’s story—is a powerful revolutionary act. It should come as no surprise that nondisclosure agreements—contracts that may purport to bar a worker from saying “me too” to close confidants, colleagues, or the world at large—are the target of the legislation.
The Stand Against Non-Disclosure (STAND) Act, SB 820, makes it unlawful to include a provision within a settlement agreement that prevents the disclosure of factual information related to claims of sexual harassment. The prohibition only applies where an administrative or court complaint has already been filed, and it permits a confidentiality clause requested by the employee to the extent necessary to shield her identity. Thus, for example, an employee may agree to and request an order sealing those portions of a court complaint that disclose her identity. But an employer may not demand a clause that requires the sealing of information about the alleged harasser or which bars the employee from discussing her allegations with anyone. The new statute will be codified at Cal. Code of Civil Procedure Section 1001.
AB 3109 makes unlawful any provision in a contract or settlement agreement that purports to waive a person’s right to testify about criminal conduct or sexual harassment. It will be codified in Cal. Civil Code Section 1670.11.
Finally, SB 1300 prohibits requiring an employee, as a condition of employment, to sign an agreement that bars her from disclosing information about unlawful acts in the workplace, including sexual harassment. SB 1300 targets NDAs with existing employees, who are potentially more vulnerable to coercion and intimidation. In such circumstances, a non-disparagement agreement will be enforceable only if it is executed in connection with a “negotiated settlement agreement to resolve an underlying [harassment or discrimination] claim  that has been filed by an employee in court, before an administrative agency, alternative dispute resolution forum, or through an employer’s internal complaint process.” And a settlement is deemed “negotiated” only if it is voluntary, informed, involves payment of consideration, and the employee has been given notice and an opportunity to hire a lawyer. The law will be codified at Government Code Section 12964.5.
What sort of confidentiality agreements are permissible in California after January 1, 2019? These new laws will not prohibit a provision in a settlement agreement that bars the employee from disclosing the amount of the settlement payment. Provisions requiring an employee to maintain the confidentiality of trade secrets will also be enforceable (subject to existing limitations). However, once an administrative (DFEH) or court complaint is filed, the STAND Act arguably bars a broad non-disparagement clause in a settlement agreement that could be interpreted to preclude the employee from discussing illegal workplace conduct, including sexual harassment. Many other non-disclosure agreements that purport to bar existing employees from sharing information about the workplace will also be unlawful. Broad NDAs may need to be redrawn so that they are limited to protect trade secrets or other similar information.
NDAs are under the microscope in other jurisdictions as well. Effective October 1, 2018, New York has outlawed nondisclosure provisions in settlement agreements unless they are specifically requested by the employee. Washington State and Tennessee now prohibit employers from requiring as a condition of employment that employees execute a nondisclosure agreement barring them from discussing sexual harassment or sexual assault. And the Women and Equalities Select Committee of the UK Parliament is conducting an inquiry into the use of NDAs after receiving testimony about their abuse. Legislatures around the country and around the world are re-examining whether the right protocols are in place to prevent harassment before it happens and support the victims when it does occur.
Although the full story has not yet been written, these new laws may reshape the NDA landscape. And collectively, they underscore a public policy against secrecy which may reset settlement table dynamics related to confidentiality.