By Kerry Notestine and Erin McNamara
Considering the recent passage of the federal Speak Out Act limiting the use of pre-dispute nondisclosure and non-disparagement clauses involving sexual assault and sexual harassment claims, what impact will this have on our template releases, separation agreements, and litigation settlement agreements? How do you recommend we revise those documents?
This is a great question, and one that employers across the country are dealing with after President Biden signed the Speak Out Act last week. The statute limits or prohibits the enforcement of confidentiality or non-disparagement provisions in cases of sexual harassment or assault for such agreements that were entered into “before the dispute arises.” The legislative history suggests that a “dispute arises” once an allegation of sexual assault and/or sexual harassment is made. Presumably, it would not matter whether the alleged harassment or assault occurred pre- or post-agreement, as the statutory obligations turn on whether an employee complained about the conduct before signing the agreement. Also, it appears that such complaints need not be limited to conduct towards the complaining employee, but also would include complaints about sexual harassment and assault involving others.
In general, employers should revise their template releases and agreements to include carve-out language for pre-dispute confidentiality/nondisclosure clauses under the Speak Out Act. The recommended language differs depending on the circumstances, including whether it is a pre-claim agreement (e.g., a one-off separation agreement or releases for a reduction in force) or a post-claim agreement resolving litigation or threatened litigation.
This carve-out language should be included in a general protected rights section, not just in the confidentiality clause, making it clearly applicable to the entire agreement. Additionally, the language should be coordinated with applicable state law restrictions on nondisclosure and non-disparagement agreements. For example, certain states already require specific language limiting restrictions on pre-claim agreements discussing harassment events in the workplace, including California, Illinois, Nevada, New Jersey, New York, Oregon, and Washington. The state restrictions generally are also broader than the Speak Out Act and apply to discrimination, harassment, and retaliation, beyond just sexual harassment and sexual abuse.
Pre-Claim Agreements and Post-Claim Agreements for Non-Sexual Assault/Non-Sexual Harassment Cases
For pre-claim agreements and post-claim agreements in non-sexual harassment/non-sexual assault cases, the same language can be added. Under these circumstances, the carve-out language should specify that the agreement does not limit the employee’s right to discuss sexual harassment or sexual assault disputes. In accordance with the Speak Out Act, this allows an employee to raise concerns of sexual harassment or sexual assault even after signing the agreement.
Post-Claim Agreements for Sexual Assault/Sexual Harassment Cases
Employers can still negotiate confidentiality under federal law for asserted claims of sexual assault and sexual harassment, as that would not be a “pre-dispute” confidentiality or nondisclosure clause prohibited by the Speak Out Act. Settlement agreements for sexual assault/sexual harassment claims should include carve-out language relating to the specific claim involved. For example, such carve-out language may specify that nothing in the agreement limits an employee’s right to discuss sexual harassment or sexual assault claims with the exception of the facts and circumstances of the particular pending claim as negotiated in the settlement agreement.
In effect, this language prevents disclosures concerning the issues raised in the litigation, without unlawfully prohibiting disclosure of other pre-dispute sexual assault or sexual harassment claims. Of course, this language would have to be coordinated with any #MeToo statutes dealing with settlement of pending harassment claims under state law. For example, New York’s #MeToo statute requires the employer to confer with the claimant about confidentiality, and if the claimant wants confidentiality, it requires a 21-day waiting period before the claimant can sign the agreement.
Also note that confidential post-dispute settlements of sexual harassment and sexual abuse claims would be subject to tax issues under IRC § 162(q). If the settlement includes a nondisclosure agreement, no deduction is allowed under section 162(q) for any settlement or payment related to sexual harassment or sexual abuse. Additionally, attorney’s fees paid in connection with such a settlement or payment are also non-deductible.
In sum, you should review your template releases, separation agreements, and litigation settlement agreements and add carve-out language that appropriately excludes pre-dispute nondisclosure and non-disparagement clauses in accordance with the Speak Out Act.