New York employers that include confidentiality or nondisparagement clauses in any agreement they enter into with an employee – including offer letters, employment agreements, restrictive covenant/noncompete agreements, severance agreements or settlement agreements – must ensure those clauses comply with the new federal Speak Out Act and with existing New York State law.  Those laws impose restrictions at different stages of the employment relationship, and thus present complementary, but navigable, restrictions for employers.

Limitations on Clauses Prior to Any Employment Dispute

The Speak Out Act, which took effect December 7, 2022, renders unenforceable any confidentiality or nondisclosure clause, or any nondisparagement clause, in a contract or agreement with an employee if:

• it is entered into before a dispute has arisen and
• it limits employees from disclosure or comment on a sexual assault or sexual harassment complaint.

Under the federal law, employees must be permitted to discuss “conduct,” the existence of a settlement involving “conduct,” or information covered by the terms and conditions of the contract or agreement.  The law does not define “conduct,” but it is presumably referring to the facts and circumstances related to a sexual harassment or sexual assault claim.

The Speak Out Act does not apply to other types of employment disputes, including any category of harassment complaint other than sexual harassment.  It expressly states that it is not meant to preclude employers from protecting trade secret or proprietary information.  It therefore does not invalidate most aspects of a typical restrictive covenant agreement, but employers must take care when drafting their agreements and tailor their language so the agreements cannot be construed as violating the Speak Out Act.

Employers drafting pre-dispute employment agreements with confidentiality restrictions must additionally ensure that their agreements comply with New York State law.  New York law renders unenforceable any agreement between an employer and employee that prevents the disclosure of factual information related to any future claim of discrimination unless the agreement notifies the employee that it does not prohibit the employee from speaking with law enforcement, the Equal Employment Opportunity Commission, state and local human rights commissions, or an attorney.

Limitations on Clauses Once a Dispute Arises

Because the Speak Out Act only applies to pre-dispute agreements, it permits employers to include confidentiality and nondisparagement clauses in settlement agreements with employees once an employee has asserted a sexual harassment or sexual assault claim.  New York law, however, imposes limitations on employers in this context.

New York State prohibits employers from entering into any agreement resolving a discrimination claim that would prevent the person who complained from disclosing the underlying facts and circumstances of the harassment.  New York’s law is broader than the Speak Out Act in that it applies to all discrimination and harassment complaints, not just sexual harassment.  But it is narrower in that it:

• only applies to the facts and circumstances underlying the harassment complaint;
• is limited to agreements that are resolving a discrimination claim; and
• does not place any additional limitations on nondisparagement clauses.

New York does not preclude confidentiality clauses that apply to other aspects of the parties’ employment relationship, and the law’s confidentiality restrictions do not apply to severance agreements (where employment is being terminated outside the context of a discrimination claim).

New York also permits a process whereby, in settling a discrimination claim, an employee who wishes to keep the matter confidential can enter into a written confidentiality agreement with the employer that is separate from the settlement agreement.  The law dictates very specific terms to this confidentiality agreement, including that employees be granted a full 21 days to consider the agreement (and FAQs issued by the New York State Division of Human Rights provide that the employee cannot sign before the end of the 21-day period), and have seven days post-signing to reconsider and revoke their agreement.  The confidentiality clause also cannot restrict an employee from providing information in response to a subpoena or in the context of a government investigation of a complaint, or from disclosing information necessary to receive unemployment insurance, Medicaid or other public benefits.

Where that Leaves Employers

Federal and New York law collectively still permit employers to impose confidentiality and nondisparagement restrictions on employees.  Employers must, however, draft those clauses in the pre-dispute context to permit the disclosure of information protected by the Speak Out Act and to include the clarifying notification where required under New York State law.  When settling a discrimination claim, New York employers need to ensure any confidentiality restrictions do not extend to the facts and circumstances of the underlying claim, unless the employee also desires confidentiality and the employer complies with the state’s procedural requirements for entering into a post-dispute written confidentiality agreement.

By Tracey I. Levy