#MeToo Challenges Confidentiality and Nondisclosure Agreements

#MeToo Challenges Confidentiality and Nondisclosure Agreements

By:  Ann Fromholz

May 9, 2018

This article was originally published in Los Angeles Lawyer.

Revelations about sexual misconduct in the workplace have dominated the national conversation in recent months. In early October 2017, The New York Times and The New Yorker published detailed exposés regarding the alleged serial sexual abuse of women in the entertainment industry by producer Harvey Weinstein and an elaborate cover-up system that included secret payoffs, legal threats, nondisclosure agreements, and other intimidation tactics. The reports, along with an increased number of victims willing to put their names “on the record” (whether in the press or on social media), cracked open a floodgate of allegations against powerful men across industries, including hospitality, journalism, tech, and law.

In mid-October 2017—less than two weeks after the Weinstein stories were published—approximately 140 women, including state legislators, senior legislative aides, and lobbyists, signed on to a letter complaining of rampant sexual misconduct in California’s capitol. The letter described groping, other unwanted sexual advances, and quid pro quo sex harassment by men in positions of power in the state legislature.

The #MeToo movement has exposed untold numbers of allegations of sexual harassment and resulted in serious consequences for the alleged perpetrators, ranging from criminal investigations to job loss or public disgrace. Yet, there are many more cases that have not seen the light of day (or social media) because of private contractual obligations and the fear of legal retribution.

In the wake of this cultural reckoning, more people (and law- makers, in particular) have begun to question the use of nondis- closure agreements and confidentiality agreements in cases of sexual assault or harassment. Do the provisions that buy secrecy enable harassers and permit continued abuse?

Confidentiality Provisions

Confidentiality provisions are a common and material component of nearly every settlement agreement resolving a legal dispute. In settlement agreements regarding an employee’s allegations of sexual harassment or other unlawful discrimination, a confidentiality provision frequently prohibits the employee from disclosing to anyone any details about the settlement or any facts that led up to the settlement. Exceptions may be negotiated for disclosures to the employee’s spouse, attorneys, or tax advisors. It is not uncommon for these provisions to be one-sided—in other words, only the complainant is prohibited from disclosure. Sometimes, these provisions also provide an exception for the employee to be able to testify truthfully if subpoenaed for deposition or trial (but sometimes they do not).

In other cases, the lawyers negotiating these confidentiality provisions on behalf of the defendant organization or employer may try to extend the confidentiality provision to the lawyer representing the complainant. A provision preventing the lawyer from representing other employees with complaints against the defendant or employer, however, may be an unlawful restraint on the attorney’s right to practice law.

Under Title VII of the Civil Rights Act, settlement agreements in employment cases that prohibit employees from filing charges with or assisting the Equal Employment Opportunity Commission (EEOC) in its investigations are unlawful. As the U.S. Court of Appeals for the First Circuit explained: “[T]he EEOC acts not only on behalf of private parties but also ‘to vindicate the public interest in preventing employment discrimination.’” Therefore, settlement agreements that prohibit employees from filing charges or assisting with investigations could impede the enforcement of Title VII. The First Circuit explained that “[i]n many cases of widespread discrimination, victims suffer in silence. In such instances, a sprinkling of settlement agreements that contain stipulations prohibiting cooperation with the EEOC could effectively thwart an agency investigation.”

In December 2017, amidst the barrage of revelations regarding continued sexual misconduct across industries—and related cover- ups—EEOC Commissioner Chai Feldblum said that the EEOC will be closely watching settlement agreements to ensure that such agreements do not prohibit employees from filing an EEOC charge relating to sexual harassment (or to any other protected status). “It is important for employers to know that we are looking at these agreements,” Feldblum told Reuters. Feldman stated in the same interview that the EEOC will be scrutinizing settlements that include nondisclosure agreements, in order to ensure that accusers are not being unlawfully barred from filing complaints with the commission.

A confidentiality provision is generally a material—and, so far, lawful—part of a settlement agreement that protects an employer’s interests. To many employers and their counsel, the absence of a confidentiality provision in any settlement agreement could be a deal breaker. However, the employer must be careful in drafting the language. The confidentiality provision should make clear that, despite the confidentiality obligation, an employee is still allowed to file a charge with the EEOC (or to participate in an EEOC investigation).

Nondisclosure Agreements

Aside from confidentiality provisions entered into as part of a settlement of a claim, some employers require their employees to sign nondisclosure or non-disparagement agreements as a condition of employment. These clauses can also be quite broad. For example, The New York Times reported that “Mr. Weinstein enforced a code of silence; employees of the Weinstein Company have contracts saying they will not criticize it or its leaders in a way that could harm its ‘business reputation’ or ‘any employee’s personal reputation,’ a recent document shows.”

Preemployment nondisclosure agreements are prevalent in the entertainment industry where salacious details about the private lives of public figures can easily be sold to tabloids for a significant profit. These types of nondisclosure agreements are also common in positions of employment related to public figures in other fields.

Confidentiality agreements concerning trade secrets and other proprietary business information have a legitimate business purpose in protecting a company’s profitability and commercial investments. How- ever, recent revelations about the potential for misuse and abuse of mandatory confidentiality agreements in employment have opened a discussion about whether and when broader agreements relating to confidentiality and nondisclosure might be contrary to public policy or law.

Broad non-disparagement or nondisclosure agreements may run afoul of federal labor law, for starters. The National Labor Relations Act (NLRA) makes it unlawful for employers to prevent workers from talking about the terms and conditions of their employment. Section 7 of the NLRA protects the rights of workers to engage in concerted activity. This activity is known in labor law parlance as protected concerted activity, and the protections of Section 7 apply to both union and nonunion work- places.

The National Labor Relations Board (NLRB) has held that discussions of, and gripes about, wages are protected concerted activity. Even individual complaints that employees make to each other—without any intent to engage in group action—are per se protected under the NLRA. In recent years, the NLRB has emphasized that employee complaints on social media about their workplaces are protected concerted activity. Specifically, the NLRB held that an employer may not maintain a policy that prohibits employees from making disparaging, false, or misleading statements on social media and elsewhere.

This NLRB rule also means that an employer may not prohibit an employee from making complaints about sexual harassment on social media or elsewhere. What then of non-disparagement provisions that are in some employment con- tracts? They are prohibited, too. Section 8(a)(1) of the NLRA makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7” of the NLRA. It is an unfair labor practice—a violation of Section 8(a)(1) of the NLRA—for an employer to require its employees to agree not to “publicly criticize, ridicule, disparage or defame” a company or its “directors, officers, shareholders, or employees.”

Despite this prohibition under federal labor law, some employers require such non-disparagement or nondisclosure agreements to be signed as a mandatory condition of employment. Yet, California Labor Code Section 432.5 provides that employers cannot compel an employee to agree, in writing, to any term or condition known to be prohibited by law.

The provisions also might be unconscionable and therefore unenforceable under California law because of an imbalance of power between the employer and the employee or if the employee did not have a meaningful opportunity to negotiate the provisions. Unconscionability has both a procedural and a substantive element: “[T]he former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.” In addition, a person who is fired for refusing to sign an unlawful nondisclosure agreement—or for violating one—may have a claim for wrongful termination in violation of public policy under California law.

Often, nondisclosure or confidentiality provisions in settlement agreements contain “liquidated damages” clauses. These clauses provide that, in the event of a breach, the damages will be set at a pre-determined amount. The liquidated dam- ages might be set at a percentage of the settlement amount or might require that the plaintiff return the full settlement amount in the event of a breach. For example, CNN reported on one such case a few years ago in which the plaintiff in an age discrimination suit lost $80,000 in settlement proceeds because his daughter posted about the settlement on Facebook in breach of his confidentiality agreement with his former employer.

Employers explain the need for liquidated damages provisions by arguing that the damage caused by a breach, while real, can be very difficult to quantify and prove. The argument against liquidated damages, however, is that they are unnecessarily punitive on occasions when a breach of confidentiality results in no provable monetary damages. Moreover, even if there are no liquidated damages provided in the contract, the threat of being forced to defend a breach of contract lawsuit is enough to deter many individuals from speaking out.

“Me Too” Evidence

Long before the hashtag, “me too” was (and still is) a legal doctrine permitting the discovery and admissibility of evidence of similar complaints of wrong-doing against the accused in California employment cases. “Me too” evidence can bolster the credibility of a complainant if witnesses testify and provide evidence about harassment that they experienced at the hands of the same alleged harasser. For an individual prosecuting harassment cases it is critical to discover whether any previous complaints were made against the same accused and how the employer responded to those com- plaints. A plaintiff likely will seek to introduce the testimony of prior complainants to bolster his or her own case.

Under California law, “me too” evidence is also relevant to the issue of punitive damages. An employer can be liable for punitive damages if prior complaints of sex harassment or assault were known and the employer failed to respond appropriately. A prominent example of this is a case from the 1990s against one of the country’s largest law firms, Baker & McKenzie, and one of its partners.19 Six women testified at trial regarding prior complaints of bad acts by the partner. The jury awarded over $7 million in punitive damages.

From a plaintiff’s lawyer’s perspective, it is difficult or impossible to get witnesses to corroborate a client’s case by way of a voluntary declaration or through an investigative interview if the witnesses have signed nondisclosure agreements. Although the witnesses might be compelled to provide testimony under subpoena, the fear of breaching a nondisclosure agreement might result in a less than forthcoming witness.

Simultaneously, as technology and the Internet have evolved, there has been an increase in the publication of deeply personal narratives through social media networks (e.g., Facebook, Twitter, and Instagram) and various blogs. There also has been an increase in “confessional” essays through sites such as XO Jane and Jezebel. This trend does not apply just to “millennials.” Many women of every generation now are using technology to publish extremely personal details about their lives, whether on “private” Facebook groups, participating in a hashtag on Twitter, contributing to a blog, or writing a book. Ellen Pao, the high-profile plaintiff in an employment discrimination suit that included allegations of sexual harassment, wrote in her memoir that she turned down significant settlement offers because she wished to tell her side of the story.20 Increasingly, the freedom to tell the story is a right that sexual assault or harassment victims do not want to sign away.

Recent Opposition

Perhaps some of the stigma of experiencing sexual assault or harassment has been stripped away by the sheer volume of recent revelations about the prevalence of this conduct in the workplace and elsewhere. Victims in previous generations may have blamed themselves or had no desire to speak of their wrongful treatment due to feelings of shame.

A prominent example of testimony that reflects this changing attitude is that of singer-songwriter Taylor Swift. Swift recently testified at a trial regarding a DJ whom she alleged reached under her skirt and groped her buttocks during a photo op. The DJ later was found to have engaged in the groping. During trial Swift repeatedly described the incident in frank and unapologetic terms (later quipping, “I’m told it was the most amount of times the word ‘ass’ has ever been said in Color- ado federal court”). When cross-examined about how she felt when the DJ lost his job because of her complaint, Swift testified, “I am not going to allow your client to make me feel like it is any way my fault, because it isn’t.” Taylor Swift’s testimony was praised by one publication as “sharp, gutsy, and satisfying.” An increasing refusal to be shamed into silence may explain the rising value of the right to speak about one’s personal experiences with sexual harassment or assault.

Since October 2017, opposition to confidentiality provisions in cases of sexual assault or sex harassment has grown due in part to a belief that such provisions may have protected powerful predators from accountability. California Senator Connie Leyva announced that she will introduce legislation in 2018 to ban confidentiality provisions in settlement agreements in cases of sexual assault, sexual harassment, and sexual discrimination.

McKayla Maroney, an Olympic gymnast, recently filed a lawsuit regarding the confidentiality provision in her sexual abuse settlement which, she argued, would have prohibited her from testifying at the sentencing hearing of her abuser. It was reported that the confidentiality clause would have resulted in a $100,000 fine to her if breached. Maroney’s attorney argued that the agreement provided she could only testify in court if subpoenaed but could be in breach of the agreement if she gave a voluntary statement as part of the sentencing hearing. It appears USA Gymnastics ceded to public pressure after an outcry about the confidentiality provision at issue. Several public figures offered on Twitter to pay this fine for Maroney and criticized the confidentiality provision at issue. The gymnastics organization later issued a statement that it would not pursue any money from Maroney if she spoke publicly about the abuse.

Most parties to a confidentiality provision do not have a high profile, however. If an employer discovers that an employee has breached a nondisclosure or confidentiality agreement, the employer can seek to enforce contractual rights under the agreement. Unless there is a liquidated damages provision, the employer likely will need to weigh the cost of proceeding with legal action against whether it can actually be proven that the breach caused any monetary damages (and whether the employer can actually recover any damages from the employee, if proven).

Even armed with a contractual right to proceed against a former employee, some employers may still opt to avoid the public relations risk of filing suit against a victim of harassment for making truthful statements in violation of a nondisclosure or confidentiality agreement. In a high-profile case, such action might do the company more harm than good. In a low-profile case involving a smaller employer, however, legal action against a former employee for breach of a confidentiality agreement likely would not receive much, if any, media attention.

Another way companies and employers

keep allegations of sexual harassment and assault secret is through the use of mandatory arbitration provisions. These provisions have also been the subject of pro-posed legislation. California Assembly-woman Lorena Gonzalez Fletcher announced plans to introduce legislation that would prohibit mandatory arbitration of sexual harassment claims.

There is no question that employers and their counsel generally place a high value on confidentiality provisions. Confidentiality provisions can not only keep a lid on alleged bad conduct but also prohibit discovery of the price a company paid to resolve the legal dispute. As noted, companies can also use these provisions to try to prevent former claimants from becoming witnesses on behalf of subsequent claimants.

Benefit to Employee

Confidentiality provisions can also benefit employees who make a claim and settle situations in which the employees want to keep the facts of the harassment quiet. A mutual confidentiality or non-disparagement clause might also benefit an employee by protecting the employee from the difficulty that going public with a complaint against an employer—or filing a lawsuit— can do to one’s job prospects. This assumes, of course, that a settlement is reached before a lawsuit (or other publicly available document) is filed or published. Many employers conduct background checks or other research on applicants to discover, among other things, if they have ever been a party to a lawsuit. If an applicant has been a plaintiff in a lawsuit alleging dis- crimination or harassment against a former employer, this might be a deterrent to a prospective employer.

Some of these issues may become moot if proposed legislation prohibiting confidentiality provisions in settlement agreements of sex harassment or sexual assault becomes law. Even if such a law does not pass, however, it appears likely that there will be more protection of employees in California in the future. Outside of California, the EEOC has promised more over- sight of employees’ rights with respect to settlement agreements, despite the Trump administration’s efforts at deregulation.

The reignited conversations around sexual harassment in the workplace that began in October 2017 with the exposés on Harvey Weinstein have had many and varied consequences. These include a greater push for transparency and more people using the power of social media and journalism to shed light on issues otherwise hidden, confidentiality provisions notwithstanding.

Lawyers representing individuals in employment or sexual assault cases may start pushing back on the nature of the confidentiality provisions requested by defense counsel considering these recent developments. For example, confidentiality provisions might be negotiated so that only the amount of the settlement payment must be kept confidential, but the underlying facts leading up to the settlement are not subject to the restriction. Given the increased media spotlight, claimants may be less willing to sign away their right to tell their story. Companies, on the other hand, place a high value on confidentiality and likely will insist on confidentiality provisions until and unless a law prohibits it.