Last month, Washington became the first state to adopt a law that prohibits enforcement of confidential information agreements (or NDAs) that prohibit employees from discussing or disclosing sexual harassment issues. The new law follows in the footsteps of the #MeToo movement, and it aims to avoid situations where employees fail to report or otherwise take action against harassers based on fear of being sued for breach of an NDA.
The Washington law contains an exception for settlement agreements entered into between employees and their employers, and instead prohibits companies from attempting to obtain a pre-emptive agreement from employees not to publicly disclose allegations of harassment. Pending legislation in California does not contain this exception and would prohibit the use of any NDA in connection with a sexual harassment situation. As we reported earlier this year, changes in federal tax law now make sexual harassment settlement agreements and accompanying attorneys’ fees non-deductible business expenses if the settlement agreement includes an NDA.
If asked, most employers would probably deny that their NDAs are intended to limit sexual harassment complaints. Existing federal and state anti-discrimination laws already prohibit retaliation against employees who make internal or external harassment claims. However, these new state laws could prompt employers to modify their NDAs to specifically carve out employee communications involving sexual harassment or abuse claims. Employers could pair rollout of new NDAs with reminders to employees regarding processes and options for reporting harassment incidents to the company.