Nondisclosure agreements (NDAs)–once routine and little thought about–have come under a bright spotlight in recent months. First, it was the #MeToo movement and protests by sexual harassment victims that NDAs perpetuate harassment by keeping bad, even criminal, behavior secret. Then more questions came to light with the release of Omarosa Manigault Newman’s tell-all book about her time as an aide to President Donald Trump. Does her book violate an NDA she may have signed? If so, what might the consequences be?
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While debates rage over the legality of the disclosures in the book and the effect of NDAs on sexual harassment in the workplace, employers may be taking a look at their own agreements and the motives behind them. Regardless of any analysis and soul-searching going on, their use continues.
“With all the publicity about NDAs, employees may think that nondisclosure agreements have become quite disfavored. But that is not the case at all,” Barbara Koenig, an attorney with Jackson Loman Stanford & Downey, P.C. in Albuquerque, New Mexico, says. “NDAs are still very much alive and used quite often in employment situations.”
Koenig, an editor of New Mexico Employment Law Letter, says the most common use of NDAs is to protect an employer’s confidential information that employees may acquire during their employment. “This type of information can vary from garden-variety trade secrets, like the recipe for a restaurant’s signature dish, to very sophisticated and scientific information like a complex algorithm that provides unique predictions into the purchasing habits of customers,” she says.
But in addition to protecting trade secrets, unique formulas, and other confidential information, they can protect reputations, a fact that’s now causing many to question their use. Before #MeToo, employers often were interested in keeping the details of an employment settlement confidential to prevent disgruntled employees, who may or may not have suffered harassment or other discrimination, from filing their own charges.
“In other words, the employers did not want employees thinking they too could hit the ‘jackpot’ if only they filed an employment discrimination charge,” Koenig says. “Usually, employees were also glad to have the sordid details of the employment discrimination kept confidential.”
Changing Attitudes
Another reason employees might want to keep settlements secret centers on future employment opportunities. At least in the past, Koenig says, employees often thought that if future potential employers learned of their past history of filing discrimination claims, they might have trouble landing new employment opportunities. But that idea is changing now that the public is becoming more aware of the role NDAs can play in emboldening harassers.
“The argument in the era of #MeToo is that confidentiality agreements only encourage further bad behavior on behalf of the sexual harassers, leading to more victims and more confidentiality agreements,” Koenig says.
If the behavior has crossed the line into criminal conduct, the fact that a victim may be prohibited from public disclosure “is even more disturbing and may be a violation of law,” Koenig says.
“I would propose that with the news coverage of the extent and severity of sexual harassment in the workplace, employees who have suffered this type of discrimination are not going to be stigmatized in their future employment opportunities,” Koenig says. “Thus, these employees who were victims of sexual harassment may well insist that they have the right to publicly disclose the details of their employment situation, since to keep it under wraps arguably only leads to further harassment of future employees.”
Uses and Remedies
Kelsey K. Crosse, an attorney with the Davis Brown Law Firm in Des Moines, Iowa, also says organizations should be “mindful of public perception about how and why employers are trying to squelch and protect certain information.” They also need to keep in mind that non-managerial employees have a legal right to talk about their terms and conditions of employment.
In addition, employers must keep in mind that they can’t use NDAs to prevent any employees from reporting concerns to a government agency, such as the Occupational Safety and Health Administration, the Department of Labor, or the Equal Employment Opportunity Commission.
Employers deciding to require NDAs should carefully assess what information they want to protect and why, says Crosse, a frequent contributor to Iowa Employment Law Letter. “Employers should strive to provide specific examples while also using generic terms to be adaptable to how the business may evolve over time,” she says.
Businesses of all sizes use NDAs, Crosse says. “Employers can also use NDAs with independent contractors and third-party consultants to protect confidential and proprietary information.”
Typically, employers like to seek injunctive remedies in NDAs so that they can ask a court to order an individual to no longer disclose confidential information, Crosse says. “Employers also may seek damages and attorneys’ fees depending on the language of the NDA.”
The content and remedies of NDAs aren’t the only considerations. “Employers should think about the tax implications of requiring employees to sign nondisclosure agreements,” Crosse says. “Section 13307 of the Tax Cuts and Jobs Act eliminates an employer tax deduction for settlement agreements and attorneys’ fees when a nondisclosure provision is used in a case ‘related to’ sexual harassment or abuse.”
The intent of the section in the law is to discourage secret sexual harassment settlements, but the chapter in question applies to employees as well as their employers. As a result, employees who collect settlements may have to pay taxes on the entire settlement, which includes attorneys’ fees, instead of just the portion of the settlement they actually receive.
The IRS has yet to settle questions about the new tax-cut law’s effect on sexual harassment settlements.
Tammy Binford writes and edits news alerts and newsletter articles on labor and employment law topics for BLR web and print publications.