On December 7, 2022, President Joe Biden signed the Speak Out Act (the “Act”), which limits the enforceability of pre-dispute non-disclosure and non-disparagement clauses covering sexual assault and sexual harassment disputes. The bipartisan Act was previously passed by the Senate and the House of Representatives by an overwhelming majority.
The Act places restrictions on pre-dispute non-disclosure and non-disparagement clauses. Non-disclosure clauses require the parties to a contract not to disclose or discuss conduct, the existence of a settlement involving conduct, or information covered by the terms and conditions of the agreement. Non-disparagement clauses require one or more parties to an agreement to refrain from making negative statements about another party to the contract. Many employers regularly use both of these types of clauses in employment agreements, but this practice is now under fire in certain circumstances.
Under the new law, non-disclosure and non-disparagement clauses that are applicable to sexual harassment or sexual assault disputes and contained in an agreement entered into before such a dispute arises are rendered unenforceable. Critically, the Act does not apply to agreements entered into after a sexual harassment or sexual assault dispute has surfaced. Accordingly, the Act’s restrictions would not render unenforceable non-disclosure or non-disparagement clauses in either separation or settlement agreements executed after an allegation has been made. Additionally, the Act carves out several subject-matter exclusions, explicitly stating that it does not apply to employers’ efforts to protect trade secrets and proprietary information.
Importantly, the Act does not define what constitutes a “dispute.” Therefore, there exists some ambiguity regarding the circumstances that will trigger a dispute for the purposes of this law. The intent of the Act—which is understood to be aimed at preventing victims of sexual harassment and sexual assault from being limited regarding their abilities to bring public allegations—suggests that a dispute will have arisen once an allegation of sexual harassment or sexual assault has been made. This is, of course, subject to further interpretation, and employers should monitor guidance issued to clarify this ambiguity.
Where non-disclosure and non-disparagement clauses are not restricted by the Act, they still may be subject to more stringent requirements under applicable state or local law. California, Illinois, and Washington, for example, have recently enacted similar laws that are broader than the Act, and the Act does not prevent application of these states’ laws.
Employers should also note that the Act does not apply to all pre-dispute non-disclosure and non-disparagement clauses in agreements entered into prior to the effective date, December 7, 2022. The Act provides that it will generally cover pre-dispute clauses entered into before the effective date, but it will not impact pre-dispute clauses in circumstances where a dispute became active prior to the December 7, 2022 effective date. In response to President Biden signing the Act into law, employers should review all of their current agreements with employees and consider whether and how this shift will affect those agreements. To ensure compliance, general non-disclosure and non-disparagement provisions that cover “all claims” may need to be revised to include specific carve outs for sexual harassment and sexual assault claims that have not yet arisen. Failure to take these steps may lead to employers’ existing non-disclosure and non-disparagement provisions being deemed overbroad and rendered unenforceable in connection with disputes relating to sexual harassment or sexual assault.