New York’s law on nondisclosure agreements isn’t working

In 2018, in the wake of numerous media stories about Harvey Weinstein, Michael Bloomberg, and other alleged sexual harassers, New York passed a new law supposedly prohibiting nondisclosure agreements, often called “NDAS.” Employers have often required NDAS as a condition of any settlement of discrimination lawsuits, particularly sexual harassment lawsuits, and the media had been making much hay about sexual harassment victims’ inability to tell their side of what had happened to them because they were bound by NDAS. The new law ostensibly was meant to stop requiring victims to have to choose between settling their cases and being allowed to speak out about their experiences.

But it hasn’t worked out that way.

The new law states that in discrimination cases, a settlement agreement cannot include an NDA unless the condition of confidentiality is the employee’s preference. The confidentiality term must be provided to the employee “in plain English,” and the employee has 21 days to consider the term. If the employee agrees that confidentiality is her “preference,” then such “preference” must be memorialized in an agreement signed by all parties.

This procedure does nothing to ensure that only employees who desire confidentiality agree to NDAS. The law still allows employers to suggest an NDA and allows the NDA to be enforceable against the employee. The law contains only a few narrow exceptions, none of which prevent employers from generally requiring the NDA as a condition of settlement.

Perhaps legislators thought that the procedure the law now requires would give employees a true choice of whether they want confidentiality, but that has not happened. Employers still require the NDA as a condition of a settlement. The only difference now

Only by making NDAS enforceable only against employers and not against employees would the law truly protect employees who want to speak out.

is that they create two separate agreements and require the employee to wait 21 days before signing the final agreement and getting paid. Employees still face the same choice: Either agree to confidentiality, or don’t settle.

If an employee were to agree to this term and later violate such confidentiality, there is a chance that a court could refuse to enforce the term. After all, if the law explicitly requires that the term be the employee’s preference, and it was not truly the employee’s preference, shouldn’t that term be void and unenforceable?

But it is unlikely that many employees will take that risk. Invariably, these settlement agreements include “liquidated damages” terms that explicitly provide for the employee to have to pay a large cash penalty to the employer upon violation of the confidentiality provision. No employee wants to be on the hook for that.

If the Legislature truly wanted to prohibit NDAS, it could have done so. And if it wanted to carve out an exception for those rare instances in which an employee truly wanted to keep it confidential, then it did it all wrong. The way to allow such exceptions would be to render such clauses enforceable only against employers. Employees who wish to keep their experience confidential do not need NDAS; they can simply opt not to tell anyone. Only by making NDAS enforceable only against employers and not against employees would the law truly protect employees who want to speak out.

Granted, such a law risks harming employees: Knowing they will not be able to require confidentiality, employers may opt not to negotiate any settlement. But that has always been the case. Under longstanding law, employees have faced a choice: Either agree to confidentiality or forgo settlement and the money being offered.

If the new law was intended to prevent employees from having to make that choice, then it has failed. Employers still refuse to settle without an NDA. In theory, the law may prohibit NDAS that employees do not want, but in practice, nothing has changed.