As audiences everywhere read about the lewd conduct that Hollywood producer Harvey Weinstein allegedly engaged in for decades,[i] it bears notice that his ability to “get away with it” for so long is based in large part on the institution of contract. Weinstein reportedly required employees to sign contracts containing ironclad non-disparagement clauses, which prevented them from reporting his behavior to individuals outside the company structure.[ii] And when his victims did threaten suit or otherwise prove difficult enough to warrant pay-offs in the form of settlement agreements, those agreements provided for non-disparagement and nondisclosure of any of the allegations or terms of settlement.[iii]
A New York Times article a few months ago[iv] highlighted the growing use of non-disparagement agreements in employment contracts to prevent publicity about sexual harassment in the technology industry, a sector (like Hollywood) where such allegations are rampant. These clauses have the potential to do more than chill free speech. They enable illegal behavior in the workplace by threatening job loss – and perhaps even liquidated damages – as a result of any employee’s reporting of the conduct.
In the consumer context, non-disparagement clauses (also called “gag” clauses, and used by service providers or sellers primarily to prevent negative online reviews) have been outlawed in many states[v] and recently by federal law.[vi] Many have tried to challenge the clauses in the employment context as well, arguing that they violate Title VII of the Civil Rights Act,[vii] Rule 21F-17 of the Securities Exchange Act,[viii] or Section 7 of the National Labor Relations Act (NLRA).[ix] Non-disparagement clauses may also violate public policy,[x] or be unenforceable on other contract grounds like unconscionability.
Similarly, some have tried to challenge non-disparagement clauses in settlement agreements. Courts in some jurisdictions routinely strike such clauses from agreements to settle Fair Labor Standards Act claims, finding them to violate the First Amendment’s prohibition on prior restraints as well as being contrary to FLSA policy.[xi] Outside of the FLSA context, such challenges have been less successful. A federal judge recently dismissed a lawsuit challenging Baltimore’s policy prohibiting alleged victims of police brutality from disparaging police after they receive cash settlements, finding that the non-disparagement clause the city used is valid and did not violate her First Amendment rights.[xii]
While these contract provisions may be beneficial in allowing parties to reduce potential risk, and nondisclosure or non-disparagement clauses offer incentives to enter into employment and settlement agreements, those clauses should not be used as shields against the reporting of harassing activity. Employees should continue to challenge the ability of employers to stifle criticism.
For more information, contact Allyson Haynes Stuart.
[i] Jodi Kantor and Megan Twohey, “Harvey Weinstein Paid Off Sexual Harassment Accusers for Decades,” N.Y. Times, Oct. 5, 2017, available at https://www.nytimes.com/2017/10/05/us/harvey-weinstein-harassment-allegations.html.
[ii] The New York Times reports, “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.’” Id.
[iii] “[M]ost of the women accepting payouts agreed to confidentiality clauses prohibiting them from speaking about the deals or the events that led to them.” Id.
[iv] Katie Benner, “Abuses Hide in the Silence of Nondisparagement Agreements,” N.Y. Times, July 21, 2017, available at https://www.nytimes.com/2017/07/21/technology/silicon-valley-sexual-harassment-non-disparagement-agreements.html.
[v] See Cal. Civil Code sec. 1670.8; Michaela Marx Wheatley, “Non-disparagement clauses may cause business more trouble than they are worth,” NewsOK, June 21, 2015, available at http://newsok.com/article/5429125.
[vi] Consumer Review Fairness Act of 2016, H.R. 51111, 114th Congress (2015-16); see Chelan David, “Protecting your reputation without using non-disparagement clauses,” Jan. 10, 2017, Smart Business, available at http://www.sbnonline.com/article/protecting-reputation-without-using-non-disparagement-clauses/.
[vii] EEOC v. CVS Pharmacy, Inc., 809 F.3d 335 (7th Cir. 2015) (Upholding dismissal of EEOC claims based on violation of Title VII in broad confidentiality and non-disparagement provisions in severance agreement, for failure to comply with pre-suit procedures); see James Babikian, “Tailoring Non-Disparagement Clauses to Combat Sexual Harassment in Tech,” McNaul.com, Aug. 29, 2017, available at https://www.mcnaul.com/blog/news-and-insight/startups/tailoring-non-disparagement-clauses-to-combat-sexual-harassment-in-tech.
[viii] The SEC has brought enforcement actions against companies based on confidentiality or non-disclosure clauses in employment agreements based on Rule 21F-17 and its prohibition of employer action that impedes communications by potential whistleblowers. See Babikian; “SEC Continues Enforcement Initiative, Finds NonDisparagement Clauses in Severance Agreements Restricting Communications with Regulators Violate Whistleblower Protections.,” Linklaters.com, Dec. 2016, available at http://www.linklaters.com/pdfs/mkt/newyork/Client%20Alert%20SEC%20NeuStar.pdf.
[ix] See Quicken Loans, Inc. v. NLRB, 830 F.3d 542 (D.C. Cir. 2016) (Upholding NLRB’s determination that Quicken’s confidentiality and non-disparagement clauses violated the NLRA by restricting employees from discussing compensation or job conditions with co-workers or union organizers.) See also http://www.abajournal.com/magazine/article/federal_panels_are_taking_a_harder_
look_at_nondisparagement_clauses.
[x] Rita C. Tobin, “Non-Disparagement Clauses Must Go!,” Huffpost, updated July 22, 2017, available at https://www.huffingtonpost.com/rita-c-tobin/nondisparagement-clauses-_1_b_11075998.html.
[xi] See Stoddard v. Dean Transportation, Inc., No. 616CV1288ORL40DCI, 2017 WL 2899733, at *2 (M.D. Fla. Apr. 13, 2017) (“Courts in this Circuit have routinely ‘struck non–disparagement provisions in FLSA settlement agreements and found ‘them to constitute a judicially imposed prior restraint in violation of the First Amendment.’ ”); compare Martinez v. Gulluoglu LLC, No. 15 CIV. 2727 (PAE), 2016 WL 206474, at *1 (S.D.N.Y. Jan. 15, 2016) (“Courts in this District have held that while ‘not all non-disparagement clauses are per se objectionable, if the provision would bar plaintiffs from making any negative statement about the defendants, it must include a carve-out for truthful statements about plaintiffs’ experience litigating their case. Otherwise, such a provision contravenes the remedial purposes of the [FLSA] and … is not fair and reasonable.’”).
[xii] “Judge tosses lawsuit on police non-disparagement clause,” Westport News, Oct. 6, 2017, available at http://www.westport-news.com/news/article/Judge-tosses-lawsuit-on-police-non-disparagement-12257775.php.