The #MeToo movement continues to echo in the halls of state legislatures. On March 4, 2020, New Mexico became just the latest state among many to enact legislation limiting the use of nondisclosure agreements in the context of workplace harassment, discrimination and retaliation claims.
The new law, HB 21, states that after May 20, 2020:
A private employer shall not, as a term of employment, require an employee to sign a nondisclosure provision of a settlement agreement relating to a claim of sexual harassment, discrimination or retaliation in the workplace brought by the employee...
HB-21 also provides that employers may not bar employees from disclosing workplace or work-related claims of sexual harassment discrimination or retaliation.
The new law does, however, permit confidentiality provisions relating to the monetary amount of settlement. In addition, at the employee’s request only, confidentiality clauses can apply to the “disclosure of facts that could lead to the identification of the employee” and “factual information relating to the underlying claim.”
As these types of bills have made their way through state legislatures, they have faced varying degrees of opposition. A main argument against the implementation of similar statutes is that a company may be less inclined to settle a sexual harassment (or other covered) dispute if the details are not kept confidential. In other words, the theory is that employers may be more willing to take meritless cases to trial in an effort to clear their name and reputation, which would lead to a needless expense of money and court resources on a case that may otherwise be resolved.
A related argument by opponents of the statutes is that the laws actually harm victims by taking away the only source of leverage they have for settlement. However, advocates for these laws, which have been a key legacy of the #MeToo movement, argue that unrestricted nondisclosure agreements permit a company to protect bad actor employees and executives, and harm future victims by preventing an employee from knowing about the bad actor’s past misdeeds.
Despite these counterarguments, proponents of these new laws appear to be winning the debate. As the recent New Mexico statute demonstrates, state legislatures are continuing to enact limitations on nondisclosure agreements. In fact, the New Mexico bill did not have a single opposing vote in the state House of Representatives (although it did face some opposition in the state Senate).
Employers are best served by preventing harassment, discrimination and retaliation from occurring in the first instance. Many issues can be prevented and addressed through strong anti-harassment and anti-discrimination policies, robust training programs for employees, a published and consistently implemented policy for receipt of complaints and a thorough investigation of all claims.
However, even the most prepared and well-intentioned employer may still face claims of harassment, discrimination and retaliation. When employers wish to resolve a claim, they should be cautious regarding nondisclosure provisions in standard agreements. The law in this area is state-specific and changing rapidly. Multistate employers especially must be sure to stay up to date on the laws of the states in which they operate to ensure that they do not inadvertently run afoul of any new limitations or prohibitions on the use of nondisclosure agreements.