#MeToo, Abiritration and Non-Disclosure Agreements

An employee threatens to sue your company, over alleged sexual harassment by a manager. That is — or should be– an employer’s nightmare. You’re not worried, though. You’ll get the lawsuit dismissed. How can you be sure? Easy. Your employees all sign Employment Agreements in which they agree to submit any employment-related disputes to binding arbitration.

But there’s still the risk that an arbitrator will find for the employee. No problem. You’ll settle, on the condition that the employee agrees to a non-disclosure clause. S/he won’t discuss the allegations or settlement with anyone except a spouse, lawyer, accountant, or similar type of person. If s/he breaches you’ll sue. You might even have a claw-back provision allowing you to recoup the settlement. If not, you’ll at least have money damages. Besides, s/he’d have to pay his/her own legal fees. S/he won’t want to do that. Maybe s/he can’t.

I have news for you, that you need to hear: It’s not that simple. Rarely is anything involving sexual harassment allegations (or any employment law) that simple. Binding arbitration and non-disclosure agreements may not be enforceable and they may not be available to you at all. Why not? Let’s have a look…

One of the better-known sexual harassment claims with an attempt to force arbitration was that of Gretchen Carlson back in 2016. I won’t get into the details here, as they’re not really so important to our topic. But here is the very tiny nutshell version: Ms. Carlson, a former Miss America, and former Fox News anchor alleged years of sexual harassment by Fox’s then-CEO Roger Ailes. Initially, Fox News signaled that it would seek to dismiss her lawsuit on the grounds of her employment contract’s requirement that she submit any employment disputes to binding arbitration. Then, 2 months later, Fox settled with Ms. Carlson for $20m and ousted Ailes.

Now, Congress has recently passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (H.R. 4445), which amends the Federal Arbitration Act. Surprisingly the bill had strong bipartisan support in both the House and Senate. President Biden is expected to sign it. But what is this soon-to-be law, exactly? I mean, what does it say and what does it mean for employers? Here, in a nutshell, are the 6 key provisions:

  1. No more forced arbitration — regardless of what kind of agreement the employee signed. The employee, not the employer ultimately decides whether to arbitrate or litigate. If an employee signed an agreement that s/he will submit employment disputes to binding arbitration, once this law takes effect, that provision will apparently be unenforceable.
  2. Employees can bring either individual or class action lawsuits. Many employment agreements also contain purported waivers of class action lawsuits (i.e. someone sues on behalf of themselves and all others similarly situated). Class action lawsuits can be very expensive for employers and lucrative for the class and their attorneys. The law, when it likely takes effect would appear to render such waivers unenforceable.
  3. Only a federal judge can decide whether this law applies to a given case, not an arbitrator.
  4. The law will partially apply retroactively. Existing forced arbitration contracts or provisions will be unenforceable, even if signed before the law takes effect. Prior concluded cases, however, cannot be reopened.
  5. It doesn’t only apply to employees. It also includes clients, customers, patients, and consumers that may also have been required to sign contracts with similar provisions.

Before I comment on this new law, let’s also look at the use of Nondisclosure Agreements in settlements — and some limitations.  Many employers will settle individual and even class actions containing sexual harassment claims by including a provision prohibiting employees from discussing the settlement and the allegations. As of now, at least twelve states (including CA, NY, and NJ) either ban or place limits on nondisclosure provisions in settlements of sexual harassment claims, however. That number appears to be increasing.

Why are binding arbitration of employment disputes and NDA’s in settlements of sexual harassment claims either ending or undergoing such limits? Very simply, both practices have been seen as an attempt to silence employees that have been subjected to sexual harassment. Sexual harassment (along with all bullying, harassing, abusive or discriminatory behavior) is able to continue when targets are silenced (and, for that matter, when others who know about it remain silent, but I digress). That is the reasoning behind laws limiting both.

Here’s the argument in defense of NDA’s: Confidentiality provisions in these types of settlements are often a key to getting employers to settle at all. One can argue that the NDA might actually be worse for employees in that respect, in that they will have to go through a much longer, much more arduous process to get an award–and risk losing in front of a jury. Lawyers may be more selective about their cases, given that they might have to think more about what happens if the case goes to a jury. Employers, knowing that employees might feel freer to tell all, may fight the cases more aggressively, and resort to more intimidation tactics, resulting in less, not more vindication of victims’ rights.

What’s the counterargument? The payouts might well be bigger. A jury verdict, when there is one in a sexual harassment case, is often far more than a settlement. Moreover, employers who resort to intimidation tactics could find themselves having to pay not only the verdict, not only their own legal fees but those of the plaintiffs if their behavior is particularly egregious.

OK, so what’s the bottom line, then? Don’t assume that you can make sexual harassment cases go away. Don’t assume that you can divide, conquer and pick off individual complainants by forcing them into arbitration. Don’t assume you can silence them with an NDA.

If you really want to make the problem go away, deal with the root cause — preferably sooner rather than later. Better still, set your workplace up properly from the beginning so that it’s not a breeding ground for these claims in the first place. Your friendly local employment counsel can help you there.

OK, let’s end here — for now.

Are you an employer interested in proactively addressing workplace challenges and company culture? Visit my website, http://www.theemplawyerologist.com to contact me for a complimentary 20-minute consultation. 

Watch the latest video clip in my series, “Ask the Employer’s Lawyer: My Employee Has Exhausted All Her FMLA Leave Time. What do I do?

Watch my television interview on Stop My Crisis with Vivian Gaspar.

Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.

Before choosing an attorney, you should give this matter careful thought. The selection of an attorney is an important decision. If you find this communication to be inaccurate or misleading, you may report it to the Committee on Attorney Advertising Hughes Justice Complex, CN 037, Trenton, NJ





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