Are Non-Disclosure Agreements Becoming Extinct?

The governor of California signed into law a bill that prohibits employers from forcing workers to sign nondisclosure agreements (NDA) in cases of workplace harassment and discrimination. A statute passed in 2018 prohibited NDAs in cases of sexual harassment, but this bill extends the ban to situations involving any type of harassment or discrimination.

Under the law, an employer cannot use severance agreements to prevent any current or former employee from talking about workplace misconduct, with a few exceptions. One exception allows employers to prevent workers from disclosing severance agreement amounts.

The law, which constitutes the most restrictive law regulating the use of NDAs, is effective January 01, 2022. Jeong Park "California bans nondisclosure agreements in workplace harassment, discrimination cases" www.modbee.com (Oct. 07, 2021).

Commentary

Several states have passed legislation that prohibits, in some form, the use of nondisclosure agreements in cases of workplace misconduct. They include New York, Arizona, Maryland, Tennessee, Vermont, Washington, and New Jersey.

Advocates argue that NDAs allow workplace misconduct to persist. They argue that to eradicate workplace wrongdoing, especially harassment and discrimination, employees must feel free to speak out about it.

To others, NDAs are an important tool in reaching prompt resolution of claims, a benefit to employer and employee, both of whom may wish to avoid the expense and the public attention of litigation. NDAs also encourage employers to settle claims that may be difficult to substantiate because they would have protection against damage to their reputations.

Outside of wrongdoing, there are situations in which the use of a nondisclosure agreement is warranted, including for the protection of proprietary information, trade secrets, or confidential information. You can avoid liability risk associated with NDAs by making sure your NDA is not overly broad, but focuses on the protection of specific information.

Also, the point at which an employee signs an NDA can affect your liability risk. NDAs designed to protect confidential information should be required at the time of hire, rather than when an employee is leaving.

It is a best practice to always consult your legal counsel when utilizing NDAs in your workplace.

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