What Will Become Of Non-Disclosure Agreements After Weinstein Scandal?

By Robert G. Chadwick, Jr., Managing Member, Seltzer Chadwick Soefje & Ladik, PLLC.

According to a New York Times article published on October 5, 2017, employees of the Weinstein Company have agreements wherein they agree not to harm the company’s “business reputation” or “any employee’s personal reputation.” According to the article, employees who settled claims of sexual harassment against the company against the company and its co-founder, Harvey Weinstein, also signed agreements whereby they agreed to keep the claims and settlement confidential.  For years, these agreements kept the substance and number of harassment allegations against Harvey Weinstein secret.

Non-disclosure agreements between employees and employers are not unusual. They can provide additional protections for an employer’s trade secrets and confidential data not provided by the Defend Trade Secrets Act of 2016 or state trade secrets law. They can also encompass sensitive data entrusted to an employer by customers, vendors and employees, thereby mitigating the risk of legal exposure for breach of such confidences. Employee handbook provisions addressing the security of trade secrets and confidential data are also common.

Non-disparagement agreements between employee and employees are less prevalent, but also not unusual. They can provide additional safeguards to an employer’s reputation not provided by state defamation or breach of fiduciary duty laws.  Employee handbooks also commonly include disparagement of the employer and employees as a ground for discipline, up to and including termination.

As a condition to receipt of severance pay, or payment of a disputed claim (other than a Fair Labor Standards Act claim), it is also routine for an employer to require a confidentiality agreement in addition to a release. For some employers, a confidentiality agreement has more value than the release. Without a pledge of confidentiality, the employer may decide to pay less or nothing at all for a release of claims.

In the wake of the sexual harassment allegations against Harvey Weinstein, however, what have historically been routine agreements are under new and intense scrutiny. Such scrutiny has raised key questions: Do such agreements enable future discrimination by eliminating unwanted publicity as a deterrent? Are such agreements legal? Do such agreements violate public policy?

With such intense scrutiny, it is likely that some government action as to non-disclosure agreements and non-disparagement is forthcoming.

Equal Employment Opportunity Commission

In EEOC v. CVS Pharmacy, Inc., the Equal Employment Opportunity Commission (“EEOC”) unsuccessfully argued that a severance agreement, which included a confidentiality clause, had the purpose or effect of deterring employees from filing or assisting with charges of discrimination. Considering the aggressive approach by the EEOC in recent years, it is conceivable the Commission will seek to revisit this argument in another suit. The agency may also seek to test in litigation the argument that confidentiality clauses contravene federal employment discrimination statutes by perpetuating silence about unlawful discrimination.

National Labor Relations Board

The National Labor Relations Act (“NLRA”) protects “concerted activities for mutual protection” by non-supervisory employees, which necessarily encompasses the rights to communicate with one another about collective action, and to seek to improve terms and conditions of employment through channels outside the immediate employer-employee relationship. The National Labor Relations Board (“NLRB”) has confirmed this protection includes discussion of harassment.

Under NLRA jurisprudence, agreements and rules which tend to chill such discussions can be an unfair labor practice under the NLRA even in the absence of enforcement. On March 24, 2017, the D.C. Circuit in Banner Health System v. NLRB found an employer’s Confidentiality Agreement to be an unfair labor practice because it explicitly directed employees not to discuss co-workers “[p]rivate employee information.” On July 29, 2016,  the D.C .Circuit in Quicken Loans, Inc. v. NLRB, also held that a non-disparagement rule in an employment agreement constituted an unfair labor practice where it stated: “You agree that you will not (nor will you cause or cooperate with others to) publicly criticize, ridicule, disparage or defame the Company or its products, services, policies, directors, officers, shareholders, or employees …” For employers with overly broad rules or agreements regarding confidentiality or disparagement, unfair labor practice charges are already a risk.

State Action

On October 13, 2017, New York State Senators Brad Hoylman and Nily Rozic proposed new legislation which would void any contract provision whereby an employee is required to conceal claims of unlawful conduct, including harassment. Legislators in other states may soon follow suit.

Under the jurisprudence of most states, moreover, courts will not enforce agreements if their purpose or effect is to violate public policy. Indeed, many cases have specifically voided confidentiality or non-disclosure agreements which have the purpose or effect of suppressing information regarding criminal conduct.  Especially as to employment rights protected by statute, some courts may be persuaded to void confidentiality provisions which are deemed to be contrary to the purpose of the statute.

Takeaways for Employers

Periodic review of employment rules and agreements is always recommended to mitigate the risks of legal claims.  Employment law, perhaps more than any other area of law, is ever-changing.  What is lawful today, may be unlawful tomorrow.  Employers must thus be prepared to adjust employment rules and agreements as their legality comes under new scrutiny.  If not now for rules and agreements subject to the NLRA, the time may soon come for employers to revisit the viability of their non-disclosure rules and agreements, non-disparagement rules and agreements, severance agreements and settlement agreements.

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