Federal Law Makes Some Non-Disclosure Clauses Unenforceable Relating to Sexual Misconduct
On December 7, 2022, the “Speak Out Act” was enacted. This act imposed nationwide limitations on the the use of pre-dispute non-disclosure and non-disparagement contract clauses relating to allegations and claims involving sexual assault and sexual harassment.
This Act is not a blanket prohibition on the use of non-disclosure agreements when used to resolve sexual assault and sexual harassment claims after those claims have arisen; it does, however, limit the circumstances in which these clauses may be enforced by a court of law if the agreement is entered into before a dispute actually arises. Under the Speak Out Act, these pre-dispute clauses will not be enforceable in a court of law.
Non-Disclosure and Non-Disparagement Clauses Executed Before the Dispute Arose Are Unenforceable
The Speak Out Act renders non-disclosure and non-disparagement clauses unenforceable when two conditions are met:
There is a allegation involving sexual harassment or non-consensual sexual acts or contact (sexual assault), and
The non-disclosure or non-disparagement agreement was entered into before the dispute arose.
For example, if an employee executed an employment contract with non-disclosure and/or non-disparagement clauses and those clauses would restrict the ability to speak out about allegations of sexual harassment or misconduct, and if that contract was executed prior to an allegation of and dispute arising from sexual harassment or misconduct, the non-disclosure and/or non-disparagement clauses will not be enforced by a court of law. If the employee speaks out about the allegations, a court will not enforce these provisions to restrain the employee’s speech.
On the other hand, if the employee executes a contract containing these provisions after the dispute has arisen, such as in a settlement agreement or as used in the course of pre-litigation negotiations to reach a quick and effective resolution of the dispute, the non-disclosure and non-disparagement clauses will be enforceable to restrain the employee’s speech as specified by the agreement. Essentially, an employee is welcome to enter into an agreement and knowingly waive their rights to speak out about an event that has already occurred after they know, specifically, what they are waiving the right to speak about; however, a court is not going to enforce an agreement where an employee waived the right to speak out about a future event and could not know precisely what they were waiving the right to speak about.
To be clear, employers may still utilize non-disclosure and non-disparagement provisions in employment agreements, generally. The Speak Out Act is not a blanket prohibition on these types of clauses. The Act only limits the enforceability of these clauses when used to restrain speech and silence victims when these agreements were executed before a dispute regarding sexual harassment or misconduct arose. These clauses are otherwise generally enforceable (in accordance with your particular state and local employment laws). Further, nothing in this Act prohibits the use of these clauses after the dispute has already arisen in furtherance of settlement negotiations and resolution of the dispute so long as the agreement is executed after the dispute arose.
The Speak Out Act is Not Retroactive
Finally, the Speak Out Act is not retroactive. This means that it only applies to claims arising after its enactment on December 7, 2022. It does not impact the enforceability of non-disclosure and non-disparagement clauses in connection with earlier disputes.
To learn more about how this new legislation could impact your company, we suggest discussing your concerns with a knowledgeable business attorney. This is particularly vital if you regularly use non-disclosure and non-disparagement clauses in your employee contracts.