Employment Law Attorneys

The Long Overdue Death Of Non-Disclosure Agreements: Uncovering The Hidden Truth Of Employment Settlements…8 min read

By Chris Avcollie,

In an often-quoted line from the hit TV series Dexter, actor Michael C. Hall, who plays the title character said: “There are no secrets in life; just hidden truths that lie beneath the surface.” For those of us involved in the resolution of employment claims on behalf of employees, this quote has special meaning. Beneath the surface of most employment settlement agreements lie the undisclosed facts that led to the conflict and which often result in the messy end of an employment relationship. Recently proposed legislation in California seeks to ensure that those “hidden truths” do not remain hidden.

California Proposes New Law – Silence No More Act (SNM Act)

A new law proposed in California this week called the Silenced No More Act (SNM Act) is intended to prevent the enforcement of non-disclosure provisions in a wide variety of employment settlement agreements. The legislation, proposed by California State Senator Connie M. Leyva, will expand upon the 2018 STAND Act (Stand Together Against Non Disclosure) and will protect plaintiffs in cases of employment discrimination and harassment of all kinds who choose to speak out publicly about their experiences. Under the current provisions of the STAND Act, only plaintiffs in cases of gender discrimination or sexual harassment may avoid non-disclosure provisions. The new law will expand the STAND Act to prevent the use of non-disclosure provisions in employee severance agreements. Under the SNM Act, targets of discrimination based on race, national origin, religion, or gender identity will also now be free to ignore the contractual gag orders companies negotiate into their settlement agreements.

This legislation has been supported by employee rights groups in California including the California Employment Lawyer’s Association and the Equal Rights Advocates.  The new laws are seen as an end to the days when employer misconduct can be hidden from public view. Workers who have been targeted with harassment and discrimination will be free to speak their truth publicly. The perpetrators of this type of misconduct can no longer hide behind the veil of secrecy provided by their company. Non-disclosure and non-disparagement agreements will no longer be used to silence employees.  The hope is that the public disclosure of the details of these abusive work environments will prevent perpetrators from targeting other workers in the future.

STAND and SNM Could Influence Other States to Pass Similar Laws

Although STAND and SNM (if it is enacted) are or would be exclusively California laws, these statutes could ultimately have a broad national impact. Other states often follow California’s lead in employment matters. Further, the fact that so many large technology companies are headquartered in California gives these laws an outsized influence on the national conversation about non-disclosure agreements. In the wake of the STAND Act, a number of states have enacted some limitations on non-disclosure enforcement including Washington, New York, New Jersey, Vermont and Tennessee. Many more states are likely to see some version of this legislation in the future.

More Cow Bell – More Corporate Disclosure and Shaming = More Equality in the Workplace

As am employment attorney, I was very curious about how this new legislation might impact the ability of plaintiff’s lawyers to negotiate settlements for clients in employment discrimination cases. Often the best leverage plaintiffs have in the early stages of an employment case is the prospect of public disclosure of misconduct on the part of a company employee or manager. The reason many companies offer settlements to claimants is to avoid embarrassing public disclosures of uncomfortable truths about their corporate culture or work environment. Companies also have an interest in keeping settlements secret to avoid what they see as “encouraging” other claimants looking to “cash in” on potential claims. In other words, the concern is that the non-disclosure and non-disparagement provisions outlawed by the STAND Act and the SNM Act are the best tools to obtain fair settlements for employees who have been targeted with harassment or discrimination.

The STAND Caveat

Further examination of the proposed statute reveals that its scope is more limited than I had anticipated. These statutes are actually structured to encourage and not to discourage early settlement of discrimination cases. The STAND Act allows for use and enforcement of NDAs (non-disclosure agreements) in cases where there has not yet been any court or agency filings. So during the initial stage of the claim, when a demand letter has been issued but where claims have not yet been filed with state or federal human rights agencies (such as the Equal Employment Opportunities Commission or “EEOC” in federal discrimination cases or the Connecticut Commission on Human Rights and Opportunities or “CHRO” in Connecticut state discrimination cases) and no lawsuit had been filed, the companies may include NDAs in settlement agreements and they are enforceable.

This exception to the ban on NDAs is highly significant. Far from discouraging early settlements of discrimination claims, this feature of the proposed law offers employers a powerful incentive to settle employment discrimination and harassment claims early. If an early settlement is not reached then the agency filings will occur and the employer will lose the right to demand an NDA as part of the settlement agreement. In order to keep employee misconduct secret, employers will have to settle employment discrimination cases early and often. While some cases can be kept secret by early settlement negotiations, targets of discrimination who want to shed light on their experience can ensure their ability to speak out by filing their claims with state and federal agencies.

What Opponents/Management/Defense Attorneys Say About Anti-NDA Legislation

Opponents of the anti-NDA legislation contend that restricting NDAs takes away a survivor’s choice to keep their case private and provides a strong incentive for employers to refuse settlement options and to defend themselves against a publicly disclosed allegation. According to Attorney Jill Basinger, an entertainment litigation partner and Michael L. Smith an associate at Glaser Weil in Los Angeles, “This harms survivors of sexual harassment and assault by removing their choice and forcing them to endure the hardship and uncertainty of a public trial as the only means of vindicating their claims.”[1] Once an agency filing occurs or a lawsuit is commenced, the NDAs become unenforceable. It seems as if these laws would remove a strong incentive for defendant employers to settle claims.

It appears, however, as if the STAND Act has resulted in an increase in pre-filing mediations in employment cases in California.[2] According to Mariko Yoshihara, the Legislative Counsel and Policy Director for the California Employment Lawyer’s Association, the predictions and fears over the STAND Act impairing the ability to settle have not borne out. According to Attorney Yoshihara, attorneys involved in this type of litigation have informally reported that the legislation has not lowered settlement amounts or impaired the settlement process. Additionally, according to Yoshihara, it has made it easier to advocate for employee rights from a public policy perspective because the targets of harassment and discrimination can make their stories public. While dispositive data on this point is not yet available, it seems as if the legislation is working in California.

Further, fears surrounding the forced public disclosure of the identity of the claimant are unfounded. Under the STAND Act there are specific provisions which protect the identity of the complaining employee in the context of a lawsuit. The STAND Act includes a specific provision that shields the identity of the claimant and all facts that could lead to the discovery of his or her identity, including documents and pleadings filed in court, at the request of the claimant. California Code of Civil Procedure 1001(c). Thus, the anti-NDA legislation does not force the disclosure of a claimant’s identity.

While many employer advocacy groups including various chambers of commerce and industry and trade associations have opposed legislation such as STAND and SNM, similar legislation should be considered by all state legislatures that have not already enacted similar laws.  When it comes to use of NDAs in employment discrimination and sexual harassment cases there is an unfair imbalance of power between the bargaining parties. The employers who are often defending the harasser or denying that the harassment occurred have an overwhelming advantage over the complaining employee in terms of investigative, legal, personnel, and financial resources. Employers are frequently holding all of the cards in a settlement negotiation. Legislation such as STAND and SNM will help to level the playing field at least with respect to NDAs.

More Power to the People/Employees – Shift In the Balance of Power

Placing the power over which aspects of the case can or will be made public in the hands of the targets of harassment and discrimination will help balance the power in the arena of employment settlement agreements. As evidenced by the initial success of the STAND Act, these laws can be an important tool in ending the culture of silence that has permitted harassing and discriminatory behavior to continue in the workplace for so long. In a recent opinion piece, the feminist writer and critic Marcie Bianco said: “If the societal change necessary for dignity and justice is to occur, we must move from awareness to accountability.”[3] This legislation should help bridge the gap between awareness and accountability. We need to see a whole lot more of those “hidden truths” lying beneath the surface of the American workplace.

If you would like more information about this article, please contact Carey & Associates, P.C. at info@capclaw.com or call 203-255-4150.

Christopher S. Avcollie

[1] Basinger, Jill and Smith, Michael L.; “How California’s NDA Restrictions Cause More Harm Than Good for Survivors” (Guest Column); Hollywood Reporter;  https://www.hollywoodreporter.com/news/how-californias-nda-restrictions-cause-more-harm-good-survivors-guest-column-1280922

[2] LeHocky, Mark, “Shining a Needed Light on Harassment and Discrimination Claims: The Collective Benefits from California’s Recent Secret Settlement Restrictions”, Contra Costa County Bar Association, March 2020;   https://www.cccba.org/article/shining-a-needed-light-on-harassment-and-discrimination-claims/

[3] Bianco, Marcie, “Britney fans angry at Justin Timberlake have a point.” CNN Opinion, February 10, 2021.

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