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Gaming Industry Nondisclosures Become Key Test of #MeToo Laws

Sept. 14, 2021, 8:46 AM

California regulators in their investigations into sexual harassment in the video game industry are targeting companies’ use of nondisclosure agreements, raising questions about whether they are preventing alleged victims from speaking to investigators or sharing their experiences publicly.

The state’s civil rights agency, the Department of Fair Employment and Housing, has accused Activision Blizzard Inc. and Riot Games Inc., a unit of Tencent Holdings Ltd., of using such agreements to hamper its investigations into harassment and discrimination.

In the wake of the #MeToo movement, California enacted laws which restrict the use of overly broad gag orders that critics say keep victims from speaking out about workplace abuses. The state’s NDA laws specifically prohibit settlements and other agreements that restrict what employees can say about discrimination and harassment claims.

Lawyers said the clash between the DFEH and the video game industry could be a test case for how regulators use those laws to rein in those practices, and impact how employers craft nondisclosure agreements across industries well beyond the tech world.

“There’s a patchwork of laws that address NDAs attempting to prevent employees from talking about harassment and discrimination,” said Orly Lobel, a law professor at the University of San Diego. “Courts can absolutely hold employers accountable with the tools they have.”

Agency Pressure

In its investigations into Activision and Riot Games, the DFEH has repeatedly zeroed in on their use of NDAs, creating another legal headache for the companies.

Deborah Marcuse, an employment attorney at Sanford Heisler Sharp LLP, said the regulator was enforcing California laws passed to protect alleged victims of harassment and abuse to pressure those companies to ensure employees could come forward.

In its July suit against Activision Blizzard, the department alleged the company used NDAs and non-disparagement agreements to prevent employees from speaking out about an alleged “frat boy” office culture.

In an amended complaint Aug. 23, the agency further detailed those allegations. It accused the company of obtaining “repressive, if not punitive, secret settlements” and using “non-disclosure agreements, and non-disparagement agreements with severe penalties.” The agency alleged certain provisions in agreements could constitute interference with its investigation, and claimed some would require employees to notify the company before even speaking with the DFEH.

“DFEH may have a compelling argument here that this provision effectively makes employees believe that it’s not safe for them to cooperate with the government, even if strictly speaking it doesn’t prohibit them from cooperating at all,” Marcuse said.

Activision Blizzard said in August that it had complied with “every proper request” to support the agency’s investigation.

Raising the Stakes

In the case of Riot Games, the agency in August accused the game-maker of delaying the court-ordered production of private settlements with over 100 women, who have alleged unequal pay or sexual harassment. The agency then alleged those settlements contained language suggesting employees could not speak with regulators about their complaints.

Riot issued a corrective notice, but in recent filings told the trial court its employees are consistently made aware of their right to speak to the agency. A spokesperson told Bloomberg Law that the notices confirm that Riot’s severance and settlement agreements “have never in any way prohibited speaking to government agencies.”

“The wrinkle in this case is that it’s DFEH making the motion to compel,” Marcuse said.

That move “ups the ante” for Riot, she explained. The agency asserted it was entitled to copies of the agreements in discovery, and failing to produce them was tantamount to interfering with a government enforcement action.

Activision Blizzard and the DFEH didn’t immediately respond to a request for comment.

Employer Impact

“The fact that a state agency is pushing so aggressively and creatively to enforce these laws is relatively uncommon,” Marcuse said. Many states lack the resources or political will to pursue these types of actions, often leaving enforcement up to private litigants. But the DFEH’s investigative powers far exceed those of a private litigant, she added.

Once the DFEH has copies of the agreements in question, it may be able to argue that those agreements are unlawful in various ways, Marcuse said. In the case of Riot Games, that could set the stage for class members who signed private agreements to again seek to be part of a class resolution.

The agency is primarily focused on seeking injunctive relief, but the statutes at issue with respect to NDAs also provide for attorneys’ fees and penalties as well, she said.

Jonathan Brenner, a lawyer in Epstein Becker & Green P.C.’s Los Angeles office, said the impact of these cases could go far beyond the video game industry.

If the DFEH is successful with its arguments that these agreements are hampering its investigations, employers across the board could be more vulnerable to potential enforcement action, Brenner said. While neither case was sparked by NDA issues, but rather underlying allegations of harassment and discrimination, companies should take note of how the agency is using the laws on those issues to step up enforcement, he added.

“As you saw in both of those cases, the agencies have stood up and made a big deal about that,” said Brenner. He advised that employers review their templates for nondisclosure and separation agreements, especially provisions that mandate workers inform companies before speaking with law enforcement.

Beyond Silicon Valley

Broad nondisclosure agreements tend to be concentrated in the tech industry, but it is by no means the only industry where they are widely used, said Evan Starr, an associate professor at the University of Maryland who has studied the impact of restrictive agreements.

Starr said employees in states with laws restricting the reach of nondisclosure agreements are more willing to share information about their work experiences online. That willingness to speak can help end problematic employment practices perpetuated by NDAs, Starr said.

Jessica Stender, senior counsel at Equal Rights Advocates, said businesses may already be seeing the impact of California’s NDA rules and the agency’s litigation.

“A big state agency in California really taking on this issue, and calling out this behavior, will have a ripple effect, not only in the tech sector but in broader employment sectors,” she said.

“Business as usual has resulted in both sexual harassment and discrimination, and other forms of discrimination being allowed to persist, and being hidden from public view in a way that’s incredibly harmful,” Stender added.

“This will force businesses to open their eyes to the reality that they can’t keep operating as they have been to silence workers from talking about these incidents.”

To contact the reporters on this story: Maeve Allsup in San Francisco at mallsup@bloomberglaw.com; Paige Smith in Washington at psmith@bloomberglaw.com

To contact the editors responsible for this story: Meghashyam Mali at mmali@bloombergindustry.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com

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