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Industry Insights

The use of confidentiality and non-disclosure provisions in employment agreements

By ,
Steven I. Adler.
Steven I. Adler.

Now, more than ever, corporations are coming under fire as a result of adverse publicity surrounding Harvey Weinstein, Bill O'Reilly and Roger Ailes of Fox News, and Roy Price, the Amazon Studio Chief who recently was forced to resign due to sexual harassment allegations.

Non-disclosure agreements (NDAs) or confidentiality and non-disparagement provisions in settlement agreements should be required in every contract when representing management to protect corporate and executive reputations.  Without them, corporations risk being labeled as hostile places to work.  That could impact recruiting as well as cause companies not to want to do business with them.  Just look what is happening to the Weinstein Company (TWC) which now is considering bankruptcy.

On the flip side, confidentiality clauses are helpful to alleged victims who might not want it to be known that they were sexually harassed.  Sometimes more importantly, victims would not see any financial recovery short of trial without them.

These clauses are not utilized necessarily to hide harassing conduct from the public.  They also protect corporate reputations as well as potentially defamatory comments about the alleged harasser who did nothing wrong or when a company settles a specious claim for nuisance value.  These clauses also do not restrict companies from announcing strong measures they are taking to make the employer a good place to work.

In short, NDAs serve useful purposes.  What needs to be corrected at many companies, however, is how quickly and strongly they react when learning of abhorrent behavior.  Settling eight different but factually similar cases over the years is damning evidence that TWC was too willing to look the other way for one of its rainmakers.  In fact, Weinstein had a clause in his employment agreement that allowed TWC to impose a financial penalty against him if he continued to engage in sexually harassing conduct.  While TWC might argue it was being proactive to protect its workforce, this type of contractual provision can easily backfire, as it seems to favor monetary penalties over the well-being of those who work for the company.  Fox News also was willing to ignore this behavior in favor of the mighty dollar.  It offered O’Reilly a four-year contract extension that paid $25 million per year after setting numerous sexual harassment claims including one for tens of millions of dollars.

New York is now looking to limit the use of NDAs. Proposed legislations (Senate Bill 6382), known as the Non-Waivable Employee Rights Act, would void any contract provision where an employer attempts to force an employee prospectively to keep quiet about, among other things, sexual harassment and discrimination claims, even those arising out of arbitration settlements.  This proposed amendment to the New York Labor Law would be the first of its kind in the nation, but would allow the amount of any settlement to remain confidential. Stay tuned.

Sexual harassment, and harassment based upon any other protected category under the law (race, age, religion, gender identity, disability, nationality, etc.) are concerns that every company in New Jersey should have as the New Jersey Law Against Discrimination (“NJLAD”) covers every employer in this state regardless of size.  Every employer needs to have a written anti-harassment policy and must regularly conduct training sessions for its employees as well as supervisors.  There can be personal liability under the NJLAD, punitive damages and shifting of attorneys’ fees.

[1] Steve Adler co-chairs the Labor and Employment Law Practice Group at Mandelbaum Salsburg and a member of the Litigation Department. Adler has been involved in numerous high profile employment cases, including defending companies and executives in all types of discrimination and harassment lawsuits.

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