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States Act to Curb Employer Overuse of Non-Disclosure Agreements

Sept. 27, 2022, 9:41 AM

State governments are strengthening rules that prohibit some workplace confidentiality agreements as more companies ask workers to sign broadly worded contracts.

Non-disclosure agreements have become so routine that even loading-dock workers sign them as part of their onboarding paperwork, prompting courts and legislatures to weigh in as employees complain they’re reluctant to speak up about workplace misconduct.

“NDAs in employment contracts have long existed, but we’ve seen them definitely in the past few years change in shape and how frequently they show up,” said Andrea Johnson, National Women’s Law Center Director of State Policy.

“It’s not any more about trade secrets. The words used will easily cover what happens in the workplace and what the employee sees,” she said in an interview.

The situation has gotten tense in Illinois, where a worker was fired after she talked to reporters about her work environment at an Amazon.com Inc. warehouse. She claims her coworkers were made to understand she was ousted because she spoke out. Amazon said the termination was for attendance reasons.

Either way, Amazon’s confidentiality agreement is at issue in the case. The fired employee’s lawyer is currently investigating several claims by other clients who have alleged retaliation from Amazon since they complained about the work environment at the company’s Joliet warehouse.

At least 16 states have statutes or regulations addressing confidentiality agreements, Johnson said. Some of those laws, spurred by the #MeToo movement, prohibit their use in sexual misconduct cases.

Maine went further, enacting a law (H.P. 1112) this year banning employers from using nondisclosure agreements to stop employees from reporting workplace misconduct to a law enforcement agency.

An Oregon law (S.B. 726) expressly allows individuals to sue employers that violate state confidentiality laws.

Illinois law provides employee protections against the enforcement of confidentiality agreements favorable to whistleblowers.

Federal Role

Employment contracts are governed by state contract law, but the National Labor Relations Act imposes limitations on what can be covered. For instance, it’s a violation of the federal act to prohibit employees from discussing pay or working conditions, University of Minnesota law professor Charlotte Garden said.

Once a lawyer drafts a nondisclosure agreement for the company, it’s easy to spread its use widely. “There is no cost to companies to put these contract terms in workers’ rules or contracts,” Garden said.

One motivation to draft onboarding agreements broadly is fear of public embarrassment to companies. “It’s nothing like the trade secret scenario or the confidential customer list scenario. It’s the, ‘We would prefer nobody knew about this’ scenario,” she said.

Necessity Questioned

When NDA disputes are litigated, judges examine whether the dispute is about information that’s actually confidential, according to Marquette University Law School professor Nadelle Grossman. In some cases, for instance, judges will consider whether the information is stale or publicly available. It might be unreasonable for employers to expect some types of information to remain confidential forever, Grossman said.

Appellate decisions in Illinois (AssuredPartners, Inc. v. Schmitt, Ill. App. Ct., 1-14-1863, 2015) and California (Brown v. TGS Management Co. LLC, Cal. Ct. App., 3d Dist., No. 30-2016-00881773, 2020) found confidentiality agreements unenforceable under state law because they were too broad.

It can also be more time consuming and expensive to draft unique agreements for distinct groups of employees. “I teach advanced contracts, and I’ve had HR managers and general counsels talk about how they draft their contracts,” University of Wisconsin Law School professor Steph Tai said in an interview. “It’s designed to be formulaic and it’s not adapted for a particular position,” Tai said.

John Schriver, a Duane Morris LLP partner, agreed the agreements may be ill-suited for some purposes. “Frankly, a confidentiality agreement isn’t necessary for lower level employees who misuse or remove confidential papers or data. That’s theft, or in the terms of civil court claims, conversion. That’s a tort,” he said in an email.

‘Intimidation Tool’

The Illinois Amazon complaint alleged that White warehouse employees were allowed to wear boots and shirts emblazoned with a Confederate flag image and that racial slurs were scrawled in warehouse bathrooms in Joliet.

Worker Tori Davis, who complained about a hostile work environment and described the situation to reporters, was fired.

“These were contracts they signed upon being hired that certainly don’t apply to warehouse workers, low-wage employees who are working on a line, working on a dock, working with forklifts, taking things on and off a conveyor belt,” Davis’s lawyer, Tamara Holder, said. She runs her own law firm. “This is an intimidation tool that Amazon is using to scare their workers from speaking out against workplace violations.”

Holder said an Amazon supervisor told employees Davis was terminated because she spoke out publicly. Amazon spokesman Richard Rocha said Davis was terminated for repeated time and attendance policy violations.

The Amazon confidentiality agreements signed by new employees require them to refrain from sharing confidential or proprietary information, but they don’t prohibit speaking about ways in which they think the company could improve, Rocha said in an email. The agreements explicitly state employees can talk about their own or coworker wages, hours, and working conditions, he said.

Reality Check

David Woolf, a Faegre Drinker Biddle & Reath LLP partner, said he often asks clients why they want confidentiality agreements.

“The situations I see, the ones I deal with, are when the employer has a genuine concern that something could escape—trade secrets, confidential information, proprietary information, IP,” Woolf said. “All they’re saying is that if it’s confidential, don’t take it, don’t use it, don’t provide it to somebody else. And I think in that framework, that’s just fine.”

As a deterrent against public griping, though, “I don’t think it works,” Woolf said. “I think eventually if workers want to complain, they’re going to complain.”

To contact the reporter on this story: Stephen Joyce in Chicago at sjoyce@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloombergindustry.com; Cesca Antonelli at cantonelli@bloomberglaw.com