TOP 10 CLAUSES

Other areas of NDA restriction

Wage violations (Washington State)

Retaliation (Illinois,Manitoba,Maine, New Jersey, New York, Utah)

Universities: included in other bans above and specifically in Ontario’s Strengthening Post-Secondary Education and UK Higher Education (Freedom of Speech) Act

School student abuse (Louisiana)

Limits on the use of NDAs by government, and using public monies (eg Arizona, California, and proposed in Canada (Bill S-232) federally)

Prohibiting NDAs for consumer disputes is being discussed. The federal Consumer Review Fairness Act prohibits the standardized use of non-disparagement clauses in consumer contracts. 

Prohibiting NDAs in medical malpractice cases isbeing discussed in Washington State after a series of shocking cases in the media

Some laws additionally specify that the scope of the NDA restriction does not affect the “normal” use of NDAs to protect client confidentiality or trade secrets. For an example see New Jersey

Section 2(c) “Notwithstanding any other provision of law to the contrary, this section shall not be construed to prohibit an employer from requiring an employee to sign an agreement: (1) in which the employee agrees not to enter into competition with the employer during or after employment; or (2) in which the employee agrees not to disclose proprietary information, which includes only non-public trade secrets, business plan and customer information.

A “non-disparagement clause” is included within the definition of an NDA and is subject to the same restrictions

A non-disparagement clause forbids any negative comment that will affect the reputation of the other side. Non-disparagement clauses go much further than the legal duty not to defame a person by saying something untruthful about them. A non-disparagement clause forbids any type of negative comment (including truthful and factual ones) that may damage the reputation of the other side. Virtually all legislation globally includes a non-disparagement clause within the definition of an NDA (for example, Section 4(9) in PEI’s Non-Disclosure Agreements Act)

There are two different approaches emerging globally to the type of ban that legislation imposes. These are (A) any NDA in the proscribed area (see scope above) is void and unenforceable or (B) a  “condition based” ban ie you can still have a legal NDA as long as it meets certain conditions such as “complainant preferences” and “public interest”  

1. A straightforward ban on a non-disclosure agreement/ permanent confidentiality in the proscribed area (eg sexual harassment, discrimination) is much simpler to legislate and provides far better protection for victims (who can be asked to simply sign a sheet saying that they “preferred” an NDA without understanding their choices). This is the approach CBMS is now recommending. 

Straightforward bans have been enacted by many US states, including

• California

1001. (a) Notwithstanding any other law, a provision within a settlement agreement that prevents the disclosure of factual information related to a claim filed in a civil action or a complaint filed in an administrative action, regarding any of the following, is prohibited”

• Texas

129C.002 “Any provision of a nondisclosure or confidentiality agreement or any provision of a nondisclosure or confidentiality agreement of an employment agreement is void  and unenforceable as against the public policy of this state…”

• The US federal law banning pre-employment sexual harassment NDAs is also a straightforward ban, no conditions.

• Washington State (Bill 1795) also bans NDAs for discrimination, illegal harassment, illegal retaliation, wage violations, and sexual assault, but goes even further by stating that any effort to talk an employee into a prohibited NDA is a violation subject to penalties.  

2. A ban on any non-disclosure agreements in the proscribed area that do not meet certain conditions including (eg) protection of the public interest, no harm to the health and safety of a third person, complaint’s requested preference for an NDA rather than a victim-protective clause (see (4) below). 

The qualification of “complainant’s request” or "complainant's preference” for an enforceable NDA was added to the earliest Bills (for example PEI and Ireland)  because there was a concern from some groups that banning NDAs altogether took away “choices” from victims. In the hundreds of cases that CBMS has dealt with we have never seen signing an NDA as a real choice, but instead, and consistently, the result of lack of information about alternative ways to protect confidentiality 

We are no longer recommending this approach. However if it appears necessary to ensure passage in your jurisdiction to include a "complainant's request” clause, we would recommend the stronger language used by Washington State which is a total ban but prohibits efforts by employers to request or even suggest an NDA - in other words, they cannot raise it, only the employee can. If the “conditions approach” is adopted, we strongly recommend the adoption of further safeguards for victims (see for example PEI Non-Disclosure Agreement Act 2022 section 3) and in particular independent legal advice and ensuring that this includes discussion of alternative means to protect the confidentiality of the victim (see (4) below). 

If your legislature will only accept a “conditions” approach, we also strongly recommend that a list of individuals who may always be consulted even where there is an operate NDA is critical. This should include not only a legal and a tax advisor (often included as sole exceptions) but also family, counsellors and therapists, spiritual advisors and victims services advocates (see the list at Section 4(6) in the PEI Act for examples). In addition, if you are adopting a conditions” approach consideration should be given to exempting speaking to a future prospective employer (see PEI Section 4(7) for an example of such a clause).

Prohibition or restrictions on NDAs does not affect the protection of the complainant’s identity for privacy reasons, which is common procedure for civil or criminal sexual misconduct. There is a strong case for protecting the identity of a discrimination or harassment complainant also to encourage reporting. There are numerous examples of clauses that ensure that this is not overlooked.

New York (c) “The provisions of this subdivision do not prohibit the inclusion or enforcement of a provision in any agreement that restricts an employer from revealing the identity of the employee and the existence of and circumstances surrounding the employment.”

See also Tennessee (in relation to sexual misconduct cases only)

The Federal Bill in Canada (S-232) requires any independent legal advice to include an explanation of alternative ways to an NDA to protect the victim’s privacy. This is critical because often an NDA is presented as the “only” way to ensure privacy for a victim (by promising the same to the other side) - this is not true or accurate legally.

The usual convention is that an act that was legal at the time that it was carried out cannot later be declared illegal. Most jurisdictions have not made NDA legislation retroactive, beyond a short term (eg Utah, s3, allows 15 months retroactivity).

The Canadian Federal Bill prohibits the use of public money to enforce an NDA, which is effectively making the legislation retroactive.

However, for private workplace and civil agreements, lack of retroactivity leaves thousands of people who have signed NDAs before legislation with the burden of a life-long NDA. It is hoped that there will be no efforts to enforce older NDAs but that is uncertain.

In the US, there are several interesting approaches to retroactivity. 

Massachusetts takes an interesting approach: Section 11 (4)(e) “With respect to agreements entered into before the effective date of this Act, disclosure by a claimant/victim of any information subject to a nondisclosure agreement that would be void as a matter of law and against public policy pursuant to this Act may not be used to invalidate the claimant’s/victim’s right to consideration under the agreement or to require the return of consideration that has already been provided to the claimant/victim.

Washington State has made workplace NDAs illegal retroactively, but not NDAs to settle legal claims (s2 (11)). “(T)his section is retroactive from the effective date of this section only to invalidate nondisclosure or nondisparagement provisions in agreements created before the effective date of this section and which were agreed to at the outset of employment or during the course of employment…. This subsection does not apply to a nondisclosure or nondisparagement provision contained in an agreement to settle a legal claim.”

Recently, Texas enacted an NDA ban on sexual abuse NDAs that is fully retroactive and has not yet been challenged. 

It has been customary for decades for the actual settlement amount to be kept confidential. Many legislators are incorporating and stating this exception in NDA legislation. This has in some jurisdictions been important to win the support of the legal profession. 

PEI Non-Disclosure Agreements Act Section (10) “... nothing in this section prohibits the inclusion or enforcement of a provision in a settlement agreement that precludes the disclosure of the amount paid in the settlement of a claim. See also New Mexico, New York and numerous others.

For example, Nevada and  Utah “...may not retaliate based on an employee's refusal to enter into a confidentiality clause or an  employment contract that, as a condition of employment, contains a confidentiality clause.”

Maryland (B) (1) “An employer may not take adverse action against an employee because the employee fails or refuses to enter into an agreement that contains (an NDA).”

We have learned in the last 2 years that it is increasingly common for terms of mediation and investigation to require not simply a confidentiality undertaking for the duration of the process - which has been common professional practice for decades - but instead a full NDA that is permanent and prevents discussion of anything learned in the process for ever. The consequence has been that a complainant who does not want to sign an NDA cannot participate and this has resulted in many unfair and negative outcomes. We are recommending that a clause is included that clarifies that a limited duration confidentiality term is all that is required for participants in mediation and investigation.

The PEI legislation includes a provision that forbids a “separate agreement” to “prevent an lawful investigation” (section 4(4)) but this has not yet been tested.

A clearer prohibition is here : Vermont (g)(1) “An employer shall not require any employee or prospective employee, as a condition of employment, to sign an agreement or waiver that does either of the following: (A) prohibits, prevents, or otherwise restricts the employee or prospective employee from opposing, disclosing, reporting, or participating in an investigation of sexual harassment.”

If either approach under Clause 3 above is adopted, prohibiting restrictions on complaints about harassment, discrimination and sexual misconduct should also prevent the use of an NDA in a contract of employment or a letter of severance. However for the avoidance of doubt, a clause should clarify that the prohibition on using an NDA for whatever scope has been chosen applies to both hiring contracts and letters of severance.We are seeing frequent use of “pre-emptive” NDAs (before any complaint) in contracts of employment and recently, in letters of severance (which also often contain a non-disparagement clause). 

There is no legal argument that a private contract such as an NDA cannot override statutory rights, including whistleblowing rights (see video here), rights under health and safety legislation, or the right to report to police. However we frequently see people being forced to sign NDAs when they are whistleblowers or complaining about a health and safety breach. We also know from our research that many people believe that signing an NDA means that they cannot report to police, which is untrue.

For the avoidance of doubt, CBMS recommends that legislation includes a specific restatement of these principles. 

An example is US federal law, where the Whistleblower Protection Enhancement Act 2012 requires the following statement to be placed on any (legitimate, permitted) non-disclosure agreement 

“These provisions are consistent with and do not supersede, conflict with, or otherwise alter the employee obligations, rights, or liabilities created by existing statute or Executive order relating to (1) classified information, (2) communications to Congress, (3) the reporting to an Inspector General or the Office of Special Counsel of a violation of any law, rule, or regulation, or mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety, or (4) any other whistleblower protection.”