Understanding the new federal laws that restrict companies’ use of Forced Arbitration and NDAs
By Brian Kabateck
At the end of last year, President Biden signed Public Law No: 117-224, known as the Speak Out Act.
The Speak Out Act “prohibits the judicial enforceability of a nondisclosure clause or nondisparagement clause agreed to before a dispute arises involving sexual assault or sexual harassment in violation of federal, tribal, or state law.”
Many companies build these provisions, called nondisclosure agreements, or NDAs, into employment contacts. NDAs are legally binding terms between parties—in this case, employer and employee—ensuring that certain sensitive information remains confidential. Over one-third of workers in the U.S. are bound by NDAs.
While some NDAs protect “legitimate business interests” such as financial information and trade secrets, they can also be misused to silence victims of abuse and discrimination in the workplace. NDAs allow companies to cover up for bad actors within their ranks by preventing victims from coming forward publicly and may abet predatory behavior—victims can’t talk to each other, so they have no way of knowing if their colleagues have the same experience.
The Speak Out Act renders such NDA provisions unenforceable in cases of sexual harassment and assault. (however, it’s important to note that the law applies only to NDAs signed before the abuse occurred.)
Introduced in July 2022 by New York Senator Kirsten Gillibrand, the Speak Out Act received extensive bipartisan support, passing the Senate unanimously on September 29; it passed the House by an overwhelming majority in November, even with over half of Republican House members voting against it.
Notably, the Speak Out Act gathered momentum partly due to the activism of two former Fox News employees, Gretchen Carlson and Julie Roginsky, who co-founded the advocacy group Lift Our Voices, which is fighting to end forced arbitration and NDA clauses. Both women were forced to sign NDAs as part of their employment contracts at Fox.
The Speak Out act was the second significant piece of #MeToo-related legislation passed in 2022.
On March 3, 2022, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, which invalidates pre-dispute arbitration provisions in cases involving allegations of sexual misconduct.
Forced arbitration is a widespread practice in which a company requires an employee, as a condition of employment, to waive their right to sue (individually or as part of a class action) in the event a dispute arises. (Forced arbitration is also used with consumers as a condition of purchasing goods or services.) The worker (or customer) gives up their right to file a lawsuit in case of a dispute; instead, they must enter into mandatory, binding arbitration, where the results are not public record.
These clauses—often tucked into the fine print of a contract—strictly favor the company, giving them protection in advance of a claim and depriving workers and consumers of power, justice, and a voice.
California is one of about a dozen states at the vanguard of these issues, having already significantly restricted companies’ power to use NDAs to limit the ability of employees to come forward and seek justice when they are victims of workplace sexual abuse or discrimination.
In October 2021, Governor Newsom signed SB 820 into law, known as the Stand Together Against Nondisclosure or STAND Act. It prohibits companies from preventing the disclosure of specific factual information about sexual misconduct and sex discrimination claims filed in civil or administrative actions.
California SB 331, enacted January 1, 2022, and known as the Silenced No More Act, builds on the STAND Act. It expands the scope of prohibitions on NDAs, further curtailing companies’ ability to prevent employees from speaking out when they have been victimized in the workplace. The Act, as the SIlenced No More Foundation explains, “bans confidentiality provisions in settlement agreements relating to the disclosure of underlying factual information relating to any type of harassment, discrimination or retaliation at work.”
These are significant steps forward in protecting workers. But the laws surrounding Forced Arbitration and NDAs are complex and evolving. It can be difficult for employees to understand the fine points of their contracts and stay abreast of their rights. If you have been the victim of harassment, discrimination, or retaliation at work, and have questions about your contractual agreement, talk to one of the experienced employment law attorneys at Kabateck LLP.