This summer has seen the outing of the tech industry’s problem with sexual harassment in the workplace.
Some commentators have pushed for companies to reconsider non-disparagement clauses in their employment and other agreements, arguing that these clauses—commonly used in the tech industry—contribute to the problem by preventing tech workers from speaking up and tech companies from identifying issues that should be dealt with and bad actors who should be confronted.
In addition to these concerns, non-disparagement clauses also pose potential challenges under applicable securities or employment law.
As the industry continues to re-evaluate the use and scope of non-disparagement provisions (and considers whether to include carve-outs expressly designed to encourage the reporting of sexual harassment), tech companies may also want to consider the following:
- Rule 21F-17 under the Exchange Act prohibits employer action that impedes communications with the Securities and Exchange Commission regarding potential securities law violations. Beginning in 2015, the SEC has pursued enforcement actions against companies with restrictive confidentiality or non-disparagement language in their employment agreements, on the grounds that such language may have a chilling effect on would-be whistleblowers.
- Section 7 of the National Labor Relations Act generally protects employee rights to self-organize, collectively bargain and engage in other concerted activities to improve working conditions. Non-disparagement provisions may be found unlawfully overbroad if they could be “reasonably construed” to encompass communications protected by Section 7, and the National Labor Relations Board has successfully filed unfair labor practice complaints against employers on the basis of their non-disparagement language.
- The Equal Employment Opportunity Commission recently pursued an enforcement action under the Civil Rights Act of 1964, arguing that broad confidentiality and non-disparagement provisions in a severance agreement constituted an unlawful employment practice under Title VII. In 2016, the Seventh Circuit dismissed the EEOC’s action on procedural grounds, but future EEOC litigation could establish a precedent for finding such language unlawful.
To mitigate potential problems, companies should consider including appropriate carve-outs in their standard non-disparagement clauses. Below is template language, including a carve-out for sexual harassment claims, responsive to the considerations discussed above. Of course, in all cases, companies should consult with an attorney regarding how to best draft their non-disparagement provisions in light of applicable federal or state law.
1. Non-Disparagement. [Employee] will not make any disparaging, defamatory or derogatory statements about the Company, [its subsidiaries and affiliates] or any of [its][their] current or former directors, officers, executives or employees. Nothing in this Section 1 is intended to limit (i) [Employee]’s ability to institute or participate in any civil, administrative or arbitral proceeding in respect of alleged sexual harassment or sex discrimination by the Company, [its subsidiaries and affiliates] or any of [its][their] current or former directors, officers, executives or employees, or to participate in or cooperate with any investigation or proceeding conducted by any federal, state or local agency regarding the same; (ii) [Employee]’s exercise of protected rights under applicable federal law, including under Section 7 of National Labor Relations Act of 1935, to the extent a contractual waiver of such rights is unenforceable; (iii) [Employee]’s right to report possible violations of federal law or making other disclosures that are protected under the whistleblower provisions of federal law or claiming any award under such provisions; or (iv) otherwise providing truthful information in response to a subpoena or other legal process, provided that, in the case of this clause (iv) only, [Employee] provide prompt written notice of such subpoena or other legal process to the [Chief Legal Officer][Chief Executive Officer] of the Company.