What Employers Need to Know About the New “Speak Out Act’s” Prohibitions on Nondisclosure and Nondisparagement Provisions

 In
0

Congress has passed and President Biden is expected to sign the “Speak Out Act” into law, thereby prohibiting nondisclosure and nondisparagement provisions in pre-dispute employment agreements. While symbolic, the practical effect of this law for employers is quite limited. For more, click here.

What the Act Says. The Act is intended to enable survivors of sexual abuse and assault to speak out about their experiences and prevent the shielding of perpetrators. Specifically, it sets forth the following definitions:

  • “Nondisclosure clause” means a provision in a contract or agreement that requires the parties to the contract or agreement not to disclose or discuss conduct, the existence of a settlement involving conduct, or information covered by the terms and conditions of the contract or agreement.
  • “Nondisparagement clause” means a provision in a contract or agreement that requires at least one party to the contract or agreement not to make a negative statement about another party that relates to the contract, agreement, claim, or case.
  • “Sexual harassment dispute” means a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.

The Act then provides that, in the context of a sexual harassment dispute, nondisclosure or nondisparagement clauses with employees and independent contractors are unenforceable in a court of law. However, the Act is narrow in scope, applying only to those agreements that were entered into before a sexual harassment dispute arises (e.g. an employment agreement at the time of hire). It does not apply to post-dispute agreements, such as those in settlement of a claim of sexual harassment. And it does not apply to any kind of dispute other than sexual harassment.

Other Protections. Notably, a number of states have enacted provisions that apply to a broader range of agreements, including post-dispute settlement agreements. And the federal Tax Cuts and Jobs Act of 2018 contained a provision prohibiting the deduction, as an ordinary and necessary business expense, of any settlements of payments related to sexual harassment or sexual abuse, or associated attorneys’ fees, if the settlement or payment is subject to a nondisclosure agreement, as we discussed in our December 2017 E-Update.

What Employers Should Do Now. Employers should understand that, once the Act is signed into law, currently-existing clauses will not be enforced going forward. And to the extent that employers continue to include nondisparagement or nondisclosure clauses in employment agreements, such as those pertaining to confidential business information and trade secrets, they should ensure that there is a carefully-crafted carve-out for sexual harassment disputes.