Privacy and non-disparagement provisions: are your employment forms 2023 compliant?

Employers who routinely use non-disclosure and non-disparagement provisions in their forms of employment may need to review such provisions in light of recent changes at both the state and federal levels. This article provides a summary of what changes employers may need to make.

Colorado update

The Colorado POWR law was signed into law in June 2023 and went into effect on August 7, 2023. The purpose of the law is to prevent employers from concealing discrimination or unfair employment practices through the use of nondisclosure provisions.

As used in the new law, a “nondisclosure clause” means a provision in an employer-employee agreement “that limits an employee’s or prospective employee’s ability to disclose or discuss, orally or in writing, any alleged discriminatory or unfair employment practices. practice”.

READ: How Will FTC’s Proposed Ban on Non-Competition Clauses Affect Colorado Law?

A non-disclosure provision in an employer-employee agreement entered into after the effective date of the POWR Act is void if it does not comply with the new requirements set out in the Act. In particular, the non-disclosure clause must meet all of the following requirements:

1. The provision should apply equally to the employer and the employee.
2. The provision must clearly state that it does not prohibit an employee from disclosing the facts underlying any alleged discriminatory or unfair employment practice, and must list several specific instances in which disclosure is permitted.
3. The regulation should make it clear that disclosure of the underlying facts of any alleged discriminatory or unfair employment practice is not contempt.
4. This provision should provide that if the agreement contains a non-disparagement clause and the employer humiliates the employee, the employer has no right to enforce the non-disparagement or non-disclosure clauses or seek damages against the employee who violated the clauses.
5. Any liquidated damages provision shall not constitute a fine or penalty and shall provide for an amount of damages that is reasonable, proportionate and non-punitive.
6. The contract must contain an addendum, signed by all parties to the contract, certifying compliance with each of the above requirements.

Non-disclosure and non-disparagement clauses are particularly common in severance and settlement agreements with employees. These forms will need to be modified accordingly. Overbroad non-disclosure clauses in employment agreements and handbooks also need to be changed.

However, because the Act only applies to provisions that limit an employee’s ability to disclose an alleged discriminatory or unfair employment practice, the new requirements are not mandatory in every employee confidentiality agreement.

For example, a typical confidentiality agreement in which an employee undertakes not to disclose the employer’s trade secrets, financial information or similar materials would not be affected by the new law because nothing in such agreements prohibits the employee from disclosing alleged discriminatory or unfair employment practices. In these circumstances, employers should add a sentence to the confidentiality provision expressly stating that nothing in the provision shall be construed to limit an employee’s ability to disclose or discuss any alleged discriminatory or unfair employer practices.

Federal updates

The National Labor Relations Board (NLRB) is also cracking down on excessive non-disparagement and confidentiality provisions. The NLRB is an independent federal agency whose purpose is to prevent and remedy unfair labor practices committed by private sector employers and labor unions.

Recently, the NLRB has focused on ending excessive nondisparagement and confidentiality provisions. Specifically, the NLRB held that severance agreements that include extensive non-disparagement and confidentiality provisions violate an employee’s rights to engage in concerted activity under Section 7 of the National Labor Relations Act (“NLRA”).

However, a recent NLRB ruling still allows for narrowly directed non-disparagement provisions, as long as the non-disparagement provision only prohibits an employee from making statements about an employer that “meet the definition of defamation as being maliciously false, made with knowledge of their falsity, or with by reckless disregard of their truth or falsity.”

Likewise, employers may still use narrow nondisclosure agreements that limit the disclosure of business information or trade secrets if the employer has a legitimate business interest in doing so.

One potential solution is to include in the nondisclosure agreement a statement that nothing in the agreement prevents employees from exercising Section 7 rights under the NLRA. Finally, because Section 7 of the NLRA applies only to non-supervisory employees, the recent NLRB ruling does not apply if the employee in question is a supervisory employee.

Employers who want to use confidentiality and non-disparagement provisions in their employee agreements must comply with these new state and federal requirements to ensure that the provisions are valid and enforceable.

Andrew C. Blaylock of MB Law is a business attorney who enjoys helping business owners with their legal needs. Andrew enjoys helping clients close deals and his knowledge of the litigation process allows him to understand the pitfalls to avoid in order to avoid litigation. Andrew’s practice focuses on business formation, mergers and acquisitions, employment law, corporate governance, real estate transactions and commercial contracts.