Lawmakers Take Aim: Will #MeToo Curb Nondisclosure or Arbitration Agreements?

In 2017, the #MeToo movement highlighted the prevalence of sexual harassment in the workplace, toppling prominent figures in numerous fields. Sexual harassment has been unlawful for decades, of course, yet this vexing problem remains.1 In the wake of #MeToo, federal and state lawmakers are searching for new ways to complement existing antidiscrimination laws and help eliminate harassment. Although it may take several months for definite trends to solidify, this article identifies some legislative approaches we may see in 2018.

Limiting Enforceability of Nondisclosure or Confidentiality Agreements

Legislators have targeted nondisclosure agreements (NDAs) as a possible avenue for reform. Many organizations ask employees to sign NDAs for a variety of reasons, such as the protection of trade secrets. Where discrimination allegations are involved, however, employers sometimes insist upon an NDA as part of a settlement package. The NDA may require, for example, that the employee keep confidential all negotiations and the terms of the settlement. Such agreements might prevent the employee from disclosing even the existence of the settlement. Employees who breach these provisions may be obligated to pay some amount back to the employer. Opponents argue that these types of provisions prevent victims from going public with their accusations, thus enabling harassers and limiting transparency.

Some states have already contemplated bills that would curtail the use of NDAs in the resolution of harassment claims. Governor Cuomo of New York announced last week that he will propose a package of bills intended to remedy sexual harassment in the public sector, including a ban on confidentiality agreements relating to sexual assault or harassment, unless expressly authorized by the claimant.2 The New York legislature, meanwhile, is considering a measure (SB 6382A, AB8765) that would prevent the enforcement of certain NDAs. It would void “contract provisions which have the purpose or effect of concealing details relating to a claim of discrimination, non-payment of wages or benefits, retaliation, harassment or violation of public policy in employment” and specifically covers claims submitted to arbitration. 

A bill pending before the Pennsylvania Senate (SB 999) focuses more specifically on NDAs in the sexual harassment context. It would void contracts executed after the effective date that: (1) prohibit disclosure of the name of anyone accused of sexual misconduct (including stalking); (2) suppress or attempt to suppress information relevant to a sexual harassment investigation; (3) impair or attempt to impair the ability of individuals to report claims; (4) attempt to waive a substantive or procedural right relating to a claim of sexual misconduct; or (5) require someone to expunge relevant information from documents. For contracts executed prior to the effective date of the legislation, should it take effect, the bill would authorize employees to void agreements if entered into while under duress, incompetent or impaired, or a minor.

A California measure (SB 820) introduced on January 3, 2018, also seeks to eradicate secrecy in settlement agreements. Under this proposal, settlement agreements could be invalidated to enable parties to present underlying facts in a subsequent civil action. SB 820 provides that agreements preventing parties from disclosing facts giving rise to their dispute would be void as a matter of law, if the civil action alleges claims for sexual assault, sexual harassment, or workplace discrimination on the basis of sex. The law would affect agreements entered into on or after January 1, 2019. Nondisclosure restrictions could be included in settlement agreements only at the request of the claimant.

Additional bills affecting private employers are expected to appear in other states. A proposal limiting the use of NDAs has also been introduced at the federal level. The METOO Congress Act (HR 4396), currently in committee, would alter the procedures for the handling of harassment claims within the legislative branch.

Tax Consequences for Sexual Harassment Judgments or Settlements

Federal legislators employed a second tactic to rein in reliance on NDAs. The recently-enacted Tax Cuts and Jobs Act specifically addresses this issue. The new law amends section 162 of the tax code, which generally allows businesses to deduct certain ordinary and necessary expenses paid or incurred during the year as part of running the business. The amended tax law, however, erases that deduction for a settlement or payment related to a sexual harassment or abuse claim, if the settlement is subject to an NDA. Additionally, no attorneys’ fees associated with such a settlement can be deducted.

Another tax-related proposal in the U.S. House would further reduce employer deduction opportunities under section 162. The STOP Act (HR 4495) would deny deductions for “any amount paid or incurred on account of a judgment or settlement (whether by suit or agreement and whether as lump sum or periodic payments) . . . originating from . . . a claim or accusation” of criminal sexual abuse or sexual harassment. The bill defines “sexual harassment” to include “unwelcome sexual advances, requests for sexual favors, or other verbal or physical harassment of a sexual nature.” It also explicitly covers payments made “to require the non-disclosure of or otherwise prevent” claims of sexual misconduct. On the whole, the measure appears to curb deductions for “any amount paid or incurred in connection with negotiating or settling” a harassment claim—whether or not an NDA is involved.  Given the enactment of the Tax Cuts and Jobs Act, however, this standalone measure is not likely to advance.

Restricting the Use of Arbitration Agreements

As a third approach, legislators may attempt to restrict employer use of arbitration agreements. Many employers ask workers to sign arbitration clauses as a condition of their employment. Under such agreements, workers may be required to resolve any future employment-related disputes through arbitration, rather than through the judicial system.

Last month, federal lawmakers introduced the Ending Forced Arbitration of Sexual Harassment Act of 2017 (HR 4734, S 2203), which would significantly amend the Federal Arbitration Act. The bipartisan bill would invalidate predispute agreements (i.e., those signed before any dispute arose) that require arbitration of any sexual discrimination or harassment claims recognized under Title VII. This amendment would not apply to arbitration agreements between employers and labor unions, but no such provisions could limit the rights of employees to seek judicial review of their own claims.

New York’s Governor Cuomo plans to propose a similar measure, which would void forced arbitration policies or clauses. The scope and details of that proposal remain to be seen.

Requiring Employer Disclosure of Settlements

Another federal bill before the U.S. House (HR 4729) would impose an additional disclosure requirement on employers that are obligated to submit an Employer Information Report EEO-1 annually. Covered employers would be required to indicate on that form “the number of settlements reached by the employer with an employee in the resolution of claims pertaining to discrimination on the basis of sex, including verbal and physical sexual harassment.”

The bill liberally defines “settlements” to “include any agreement where anything of value is conferred to the individual raising the claim” in exchange for his or her decision to decline to pursue the claim. It applies to any agreement as well as any “internal mediation or other workplace resolution” that likewise resolves the matter. HR 4729 construes a wide variety of offensive conduct as “sexual harassment,” such as unwanted touching, inappropriate verbal comments or gestures of a sexual nature, and “undue attention to or questions about a person’s sexual relationships, sexual history, sexual orientation, or gender identity.” The measure would also protect employees from retaliation and would require the EEOC to annually report information collected about settlements to Congress.

At the state level, Governor Cuomo is promoting a disclosure requirement for public contractors doing business with New York. He intends to introduce a measure that mandates annual reporting of the number of sexual harassment violations within such an entity, along with the number of NDAs entered into by the contractor.

Efforts to “shame” employers through such disclosures are likely to face stiff resistance from the business community. Although the federal bill is not expected to advance this session of Congress, employers should be mindful of these types of approaches, which seem to be gaining popularity and rely on the public disclosure of information to strong-arm employer compliance.3

Enhancing Training Requirements

Legislators, particularly at the state level, may explore the possibility of requiring employers to provide anti-harassment training for their employees in response to the upsurge in harassment allegations. A small number of states—primarily California and Maine—currently mandate such training for certain employers. The relevant agencies in roughly a dozen other jurisdictions strongly encourage anti-harassment training, but the vast majority of states do not require it.

Many employers already provide some sort of antidiscrimination instruction. But mandatory training may appeal to lawmakers looking for ways to reinforce civil rights laws and demonstrate a commitment to principles of workplace equality. In any event, now might be a good time for employers to conduct further antidiscrimination and anti-harassment training. Employers might also consider revisiting the content of their training materials and programs to ensure they are up-to-date, interactive, and generally as useful as possible.4

While we cannot predict which, if any, of the above laws might come to fruition, we can safely assume that employers will be feeling the aftershocks of the #MeToo movement for years. As employers review their anti-harassment policies, investigation procedures, and resolution practices, they should keep an eye out for these potential developments. We will continue to monitor legislative trends and will report on any significant progress in this area.

See Footnotes

3 Last year, for example, the California legislature approved a bill (AB 1209) that required large employers (with 500 or more employees in the state) to begin collecting and providing the Secretary of State with information relating to gender pay differentials. The bill mandated that the information be publicly available by July 1, 2020. Governor Brown returned the bill without his signature, however, over concerns that the proposal was ambiguous, would not gather data that would contribute to the state’s efforts to ensure equal pay, and could be exploited to bring about more litigation. A similar type of law took effect in 2017 in Great Britain. See Tahl Tyson and Lavanga V. Wijekoon, New Mandatory Gender Pay Gap Disclosures Will Soon Take Effect for Large Employers in Great Britain, Littler Insight (Mar. 13, 2017).

4 In 2016, the EEOC issued a report analyzing harassment-prevention training efforts and offering numerous recommendations for employers. See, e.g., Kevin O’Neill, Christopher Cobey & Marissa Dragoo, Taking Workplace Training to the Next Level: EEOC Task Force Recommends Live, Interactive Harassment Prevention Training, Littler Insight (June 29, 2016). The EEOC task force’s report is available here.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.