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Federal and State Legislation Continues to Limit Confidentiality in Employment Agreements

Several states, as well as the federal government, have recently passed laws banning certain types of mandatory arbitration agreements, confidentiality clauses and non-disclosure agreements (“NDAs”) in contracts in the employment context, including separation and settlement agreements. These laws at both the federal and state level require employers to reevaluate their existing policies on a jurisdiction-by-jurisdiction basis to determine whether they comport with the newly passed laws.

Federal Legislation

On March 3, 2022, President Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (the “Act”). This Act amended the Federal Arbitration Act (“FAA”) to invalidate arbitration agreements regarding workplace sexual assault or sexual harassment claims signed before a dispute ever arises. This means that businesses may not pre-emptively require employees to sign a blanket agreement to arbitrate any potential sexual harassment claims that may ever arise in the future. The law also prohibits class action waivers in any case filed under Federal, tribal, or State law claiming sexual assault or sexual harassment. Thus, employees retain the right to bring such claims as a class action.

However, the individual asserting the claim may still choose to arbitrate claims of sexual harassment or sexual assault in the event that they signed an agreement providing such an option. In addition, although the Act prohibits pre-dispute mandatory arbitration, it allows voluntary, post-dispute arbitration, such that the parties may agree to arbitrate any dispute after one is raised.

The Act applies to claims that arise or accrue after the date of enactment (i.e., March 3, 2022) as well as retroactively to agreements already entered into prior to the date the Act was signed into law. Therefore, employers should reassess their existing arbitration agreements to determine whether they should be amended to provide for optional arbitration of sexual harassment disputes. It is estimated that approximately 60 million American employees are subject to such arbitration agreements.

In addition to prohibiting the mandatory arbitration of sexual harassment disputes, the Act also addresses an important procedural question concerning arbitrability of disputes—namely who gets to decide whether a claim must be arbitrated or not. Specifically, and despite several recent Supreme Court decisions to the contrary, the Act authorizes courts, rather than arbitrators, to decide the question of arbitrability of sexual harassment claims.

For now, mandatory arbitration agreements continue to be enforceable as to employment-related claims other than sexual harassment and assault, including discrimination and retaliation, unless otherwise restricted pursuant to state laws. However, just weeks after the FAA was amended, the U.S. House of Representatives narrowly passed the Forced Arbitration Injustice Repeal (“FAIR”) Act (H.R. 963), which, if it becomes law, would void all mandatory arbitration agreements in an employment context, as well as in antitrust, consumer, and civil rights matters. The Senate has yet to address the measure, but the White House issued a statement of support.

State Law Changes

The FAA, as amended, at least partially reconciles conflicts that have existed over the past few years with certain state laws. For example, New York State law prohibits employers from enforcing mandatory arbitration provisions to resolve workplace discrimination claims. New York state courts had enforced the law, but New York’s federal courts held that it was invalid, as conflicting with the FAA. The new amendment to the FAA likely resolves the dispute in New York, at least as to sexual harassment claims, as well as a similar conflict between the FAA and New Jersey’s Law Against Discrimination.

Notably, some states have sought to limit confidentiality provisions regarding workplace disputes beyond the FAA amendment. Similar to a California law that took effect at the start of 2022, Washington State passed the Silenced No More Act, which, as of June 9, 2022, will prohibit mandatory NDAs as a condition of employment or in separation or settlement agreements as they pertain to sexual harassment, discrimination, and wage and hour claims. Employers in the state cannot even request that employees agree to such provisions, which will be unenforceable even if the employee consents. Washington’s law also applies retroactively, invalidating existing NDAs as well as non-disparagement provisions that restrict a worker’s right to discuss what they reasonably believe to be workplace sexual harassment or assault, discrimination, retaliation, wage and hour violations, or any other breaches of public policy. Employers in the state can prevent a worker from disclosing the amount of a settlement, but cannot prevent the employee from openly discussing any other aspects of the dispute or settlement.

Practical Steps to Take Now

Employers should review their current employment agreements, regardless of where employees are located, to update their arbitration and confidentiality provisions. In addition, businesses should review their sexual harassment policies, and consider including language in employment agreements defining sexual harassment as grounds for termination for cause and/or for disclaiming any obligations to defend or indemnify employees.

Employers cannot expect to rely on a one-size-fits-all agreement when hiring, terminating, or settling employee claims. The attorneys in Kane Kessler’s Labor & Employment Practice Group are available to help companies draft legally compliant agreements, as well as navigate how best to address sexual harassment issues in the workplace. If you have any questions, please contact the Co-Chairs of Kane Kessler’s Labor & Employment Practice Group, Valerie K. Ferrier at 212 519-5107, vferrier@kanekessler.com, or Jeffrey G. Douglas at 212 519-5183, jdouglas@kanekessler.com.

This memo is provided for informational purposes only. It is not intended as legal advice and readers should consult counsel to discuss how these matters relate to their individual circumstances