Non-disclosure agreements (“NDAs”) can play a key component in encouraging American businesses to hire personnel, entrust them with valuable or confidential information, enter into joint ventures with other companies and resolve disputes in a mutually agreeable way (to name only a few scenarios).
However, NDAs can and have become a point of contention in a world that is – rightly – more focused than ever before on sexual harassment issues and conduct in the workplace.
In other words, it’s mandatory to have a firm grounding in basic elements for drafting legal NDAs:
(1) Comply with state law and be aware of new legislation
Contracts are creatures of state law and must be addressed accordingly. Recently enacted state laws around the country (such as those in California, New York, Illinois, Nevada, New Jersey, Oregon, and Vermont) define legal employer usage of non-disclosure provisions relating to sexual harassment and other claims against the employer. Failure to comply with these laws can have severe penalties.
For example, any non-disclosure clause entered into in New York on or after January 1, 2020 must include a carve-out for the disclosure of any factual information related to any future claim of discrimination, unless the provision explicitly notifies the employee or potential employee that it does not prohibit him or her from speaking with law enforcement, the Equal Employment Opportunity Commission (“EEOC”), the state division of human rights, a local commission on human rights, or an attorney retained by the employee. The New York law also contains prohibitions applicable to non-disclosure provisions in settlements of discrimination claims. For more on this provision, see this blog post, or on a related California provision here.
(2) Comply with federal law
Federal law and public policy in the United States place restrictions on the scope of NDAs. Some of these restrictions include Rule 21F-17, issued by the Securities and Exchange Commission, which prohibits impediments to whistleblower communications with the SEC; and the Defend Trade Secrets Act (more here).
Related to federal laws prohibiting discrimination and harassment on the basis of sex, statements made by the then-chairperson of the EEOC in 2017 put employers on notice that the EEOC may scrutinize and challenge settlement agreements containing provisions – often non-disclosure provisions – limiting employees’ ability to file administrative charges of discrimination or participate in EEOC investigations.
(3) Don’t forget the other parts of the contract
NDAs are sometimes accompanied by arbitration or non-disparagement clauses, which carry with them their own specific legal issues. Analysis of each type of clause is necessary in today’s world and the changing fabric of legislation. My colleague Chris Bacon wrote an informative post on some of the issues associated with non-disparagement clauses, which should certainly be considered by any business entering into such an agreement.
