The growing wave of sexual harassment cases against high-profile figures has revealed that the use of nondisclosure or confidentiality provisions in settlement agreements has forced many women to keep their sexual harassment allegations private, which, in some respects, may allow harassers to continue their misconduct. When confidentiality is made a term of a settlement agreement, the parties are generally prohibited from disclosing not only settlement terms, but also facts relating to the underlying dispute. The controversy over settlement agreements that include confidentiality provisions reached a fever pitch when it came to light that dozens of women and girls who accused former USA Gymnastics team doctor Larry Nassar of abusing them had signed such agreements. Other well-known individuals accused of harassment or abuse who have been protected by confidentiality clauses under similar circumstances include Harvey Weinstein, Kevin Spacey, Bill O’Reilly, and Bill Cosby. The inclusion of confidentiality or nondisclosure provisions in settlement agreements for employment-related cases, including sexual harassment and discrimination claims, has long been standard practice. However, the recent news stories, along with the outpouring of sexual harassment allegations from the #MeToo movement, has reignited the debate over whether confidentiality requirements should be enforceable in sexual harassment or abuse cases.
Critics of confidentiality agreements argue that such agreements enable abusers by silencing victims and allowing harassers to continue their misbehavior, assuming, as was alleged in the USA Gymnastics scandal, that those with power and potential oversight over the abuser did nothing to stop the conduct. The abuser may be undeterred and even emboldened knowing that the public may never learn of the misconduct. On the other hand, other victims may feel isolated and fail to come forward for fear of not being believed. In most cases, nondisclosure agreements impose steep financial costs in the event the accuser discloses at a later time. For instance, Olympic champion gymnast McKayla Maroney had entered a nondisclosure agreement with USA Gymnastics that, if enforced, would have resulted in a $100,000 penalty if she spoke about her abuse by Dr. Nassar or the settlement. USA Gymnastics later said they would not enforce the nondisclosure agreement. Opponents of confidentiality provisions in settlement agreements argue that the greatest benefit of banning such provisions means that serial harassers would lose the ability to buy the silence of their victims.
The inclusion of confidentiality provisions in settlement agreements for sexual harassment and discrimination claims has historically been a standard practice. A chief reason for an employer to settle a sexual harassment or discrimination claim is to avoid the possibility of a public trial and prevent any negative publicity. Moreover, confidential settlements prevent plaintiff’s attorneys who represent employees from creating a standard rate for settlements against a specific employer. Because trials can be costly, time consuming, and risky, barring nondisclosure provisions altogether for sexual harassment and discrimination claims could discourage employers from settling cases; this may result in plaintiff’s attorneys taking fewer sexual harassment cases, which could prove detrimental to victims. In addition, nondisclosure agreements can provide some benefit to accusers who do not want to be identified. Absent a confidentiality provision, victims may fear that a vindictive former boss will publicly smear them or hurt their efforts to find new employment.
Against the backdrop of the mounting criticism of nondisclosure agreements, there has been a growing trend by lawmakers at both the federal and state levels to prohibit confidentiality agreements for sexual harassment claims. One notable change in recent months at the federal level is a change to the tax treatment of settlements in claims of sexual harassment and discrimination. Specifically, 26 U.S.C. § 162(q) of the new tax law that took effect in 2018 eliminates tax deductions for settlements, payouts, and attorney’s fees in cases related to sexual harassment or sexual abuse if such payments are subject to a nondisclosure agreement. Under the new law, employers may no longer deduct attorney’s fees or settlement payments if a nondisclosure provision is used in a case related to sexual harassment or abuse. Congress is also exploring changes to allow for more transparency. For example, a bill was recently introduced entitled the Sunlight in Workplace Harassment Act which seeks to require companies to publicly report sexual harassment data. Under the proposed law, companies would be required to report payments for settlements related to sexual harassment and discrimination. Moreover, companies would be required to disclose the average length of time it took to resolve a sexual harassment complaint. There has been noteworthy change occurring at the state level as well. In 2016, California became the first state to bar nondisclosure agreements in civil cases that could be prosecuted as felony sex crimes. In July of 2018, a budget bill signed into law by New York Governor Andrew Cuomo will prohibit mandatory arbitration clauses and ban nondisclosure clauses in settlements, agreements, or other resolutions of sexual harassment claims, unless the condition of confidentiality is the complainant’s preference. State legislatures in Pennsylvania, New Jersey, and several other states have considered similar bills with the intent of banning the use of confidentiality provisions in sexual harassment and other employment-related cases.
In closing, the changing legal landscape regarding confidentiality agreements for sexual harassment and discrimination claims underscores the fact that employers must be mindful of possible changes in the future as well as recently implemented changes, such as the federal tax law. Employers should meaningfully consider the pros and cons of including nondisclosure agreements that relate to sexual harassment and discrimination claims in their employment-related agreements. Employers should certainly weigh the negative publicity and potential fallout that could result from attempting to enforce such provisions. Finally, even though there is no legal requirement to change existing agreements, employers should at least consider proactively reexamining their current agreements. A number of companies have taken such action. Most significantly, Microsoft announced in December of 2017 that it was waiving the contractual requirement for the arbitration of sexual harassment claims in its arbitration agreements for the limited number of employees who had this requirement.
 See Juliana Batista, Behind Closed Doors: The Advantages and Disadvantages to Mediating Sexual Harassment Complaints, 70 Disp. Resol. J., 87, 89 (2015) (explaining that the settlement of sexual harassment cases often means that the “public is denied the settlement information and [is] consequently unable to develop a deep understanding of patterns, trends, and common practices that should be used to resolve sexual harassment cases”).