NONDISCLOSURE AGREEMENTS BECOME ISSUE IN WAKE OF SCANDALS
Q: The ongoing Hollywood sexual-assault scandals continue to reverberate through business circles. In addition to increased focused on sexual harassment training and reporting, business use of nondisclosure agreements, both in the settlement of claims and in the normal course of employment, is facing increased scrutiny both from advocacy groups and state legislatures. States such as New York, New Jersey, and California are considering legislation limiting the use of nondisclosure agreements in cases of sexual harassment or assault. What are nondisclosure agreements?
A: Nondisclosure agreements are contracts that create a confidential relationship among two or more people. They are agreements not to disclose certain information to third parties. Nondisclosure agreements typically relate to a company’s trade secrets or business information or to the facts and circumstances of the settlement of a legal claim against a company.
Q: How do businesses use nondisclosure agreements?
A: Companies use nondisclosure agreements primarily in two contexts: as a part of a settlement of a claim against the company and generally in the normal course of employment, mostly to protect company trade secrets. Confidentiality and nondisclosure agreements are beneficial in the settlement context, because they allow a company to make the business decision to resolve a lawsuit while limiting the risk of meritless copycat claims. Confidentiality and nondisclosure agreements are important in the general employment context because they protect intellectual property and resources that a company may have spent millions in capital and human resources developing. Many companies in Oklahoma City’s major industries, such as oil and gas, aerospace, and biotech, routinely use nondisclosure agreements.
Q: Are nondisclosure agreements legal?
A: If used correctly, nondisclosure agreements are completely legal. But, nondisclosure agreements that are poorly drafted may be unenforceable or may violate state or federal law. For example, Title VII of the federal Civil Rights Act, which protects employees from sex discrimination and harassment, invalidates provisions of nondisclosure agreements that prevent filing charges with the Equal Employment Opportunity Commission or participating in an EEOC investigation. Similarly, the National Labor Relations Act prohibits employers from prohibiting workers from discussing or complaining about workplace sexual harassment or inequity based on sex. The National Labor Relations Board has also invalidated certain nondisparagement agreements as violating employees’ rights under the NLRA. Finally, Oklahoma common law prohibits taking adverse employment action against employees for reasons against Oklahoma public policy, including to conceal illegal activity. Nondisclosure agreements used for this purpose are very likely unenforceable.
Q: Why are nondisclosure agreements such a hot-button issue?
A: The ongoing Hollywood sexual-assault scandals have raised concerns that, despite their legitimate and mutually beneficial purposes, nondisclosure agreements also may enable predators to continue a pattern of sexual misconduct and lead to further victimization. The potential abuse of nondisclosure agreements is a real issue that businesses, HR professionals, lawyers, and politicians are grappling with in the wake of the Harvey Weinstein scandal.
Q: If a company uses nondisclosure agreements, what should it do to be legally compliant?
A: A company that uses nondisclosure agreements should take this moment as an opportunity to review its use of nondisclosure agreements and the content of those agreements. Nondisclosure agreements are vital to the effective settlement of claims, but repeated use to settle claims involving the same employee or department should flag a larger problem. Nondisclosure agreements must be reviewed for compliance with state and federal law. Non-compliant agreements can be invalidated by an agency or court.
Q: If a company uses nondisclosure agreements, especially in the general employment context, what should its message be to its employees?
A: A company that uses nondisclosure agreements should communicate to its employees that nondisclosure agreements are vital for the protection of the company’s intellectual property and to the health and profitability of the company. But, the company also should take the opportunity to reaffirm its commitment to diversity and the eradication of and opposition to unlawful discrimination and harassment.