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Non-Disclosure Agreements - the Good vs. the Bad

Published:  February 21, 2018

In the last few years, the Massachusetts state legislature has passed several new laws that drastically affected businesses operating in the Commonwealth, including the Pay Equity Act to the Pregnant Worker’s Fairness Act. These new laws have forced many employers to change the way they’ve done business by imposing new requirements and/or restrictions. If you have not already been preparing for these new requirements, you’ll be playing catch up. These massive changes go into effect soon: Pregnant Worker’s Fairness Act goes into effect April 1, 2018 and the Pay Equity Act goes into effect July 1, 2018.

There does not appear to be any end in sight. The Commonwealth will likely be making a decision on whether to require Paid Family and Medical Leave later this year. Recently, a Massachusetts legislature introduced a new bill that will limit businesses ability to enforce non-disclosure agreements and forced arbitration.

State Rep. Diana DiZoglio has introduced the bill (H.4058), which is aimed at barring, or at least limiting, the use of forced arbitration agreements and non-disclosure agreements in employment settings. According to Rep. DiZoglio, the bill would address issues related to discrimination, harassment and retaliation. The bill would also prevent companies from refusing to hire or firing an employee for refusing to sign such agreements. The bill is still in the nascent stages, and it’s too early to tell what it will look like if and when it comes out of committee. However, businesses should be monitoring the progress of this bill.

It is not hard to connect the dots between the recent flood of high profile sexual harassment cases and this bill. Many of the highest profile sexual harassment cases are believed to have occurred because serial harassers have been insulated by financial settlements with severe non-disclosure agreements. It’s been reported that Harvey Weinstein utilized draconian non-disclosure agreements to keep his behavior secret for decades.

Recently, there were numerous high profile news stories regarding USA Gymnastics use of non-disclosure agreements in relation to former USA National Team doctor Larry Nassar. Last month, Nassar was sentenced to 40-175 years for pleading guilty to seven counts of sexual assault of minors. Earlier this month, he was sentenced to an additional 40 to 125 years for pleading guilty to three additional counts of sexual assault. In total, Nassar was accused of sexual assaulting 250 women over nearly 30 years.

During sentencing, there was a great deal of controversy regarding whether Olympic Gold Medalist McKayla Maroney could provide a victim impact statement in Nassar’s sentencing. Maroney alleged to have been repeatedly molested by Nassar for approximately seven years, beginning at the age of 13. Maroney had previously sued Nassar and his employers (Michigan State University, United Stated Olympic Committee and USA Gymnastics). As part of a settlement, Maroney signed a non-disclosure agreement, which would subject her to $100,000 in damages for violation. Unconfirmed reports suggest that similar non-disclosure agreements have been in several other cases related to Nassar. Much like with Weinstein, many have argued the use of the non-disclosure agreements enabled Nassar’s conduct to continue. In the end, USA Gymnastics backed down due, in part, to the public outrage, and Maroney was allowed to provide a victim impact statement.

Non-disclosure agreements are an important and valuable tool in employment litigation. They typically serve a valid purpose: they allow parties to efficiently reach mutually acceptable resolutions. In most cases, they related to disputes over pay, allegations of negligence or single instances. In these cases, the non-disclosure agreement does not present the risk of allowing such behavior to continue unabated. However, there have clearly been instances where they have been used in unacceptable ways.

Ultimately, the value of non-disclosure agreements as litigation tools must be weighed against the risk of enabling unacceptable and/or predatory behavior. As is true of most legislation, the real problem is finding the right balance. As responsible members of the business community, we should all be contacting our legislators to ensure that any resulting legislation strikes the right balance of protecting victims of predatory behavior without preventing the efficient and equitable resolution of employment litigation.

If you have any questions about the matters discussed above, or any labor and employment law matters, please contact the attorneys at Royal, P.C.