Nondisclosure Agreements: What Are They, and How Do They Work in Sexual Harassment Cases?

Severance Agreement
Share

In most high‐profile sexual harassment cases, for instance, those against Bill Cosby, Herman Cain (remember him?), and now Harvey Weinstein, there are reports that women have come forward even though they signed a nondisclosure agreement or “gag order” as part of an earlier settlement agreement.

Before we examine why people would violate these agreements, let’s start by defining what we’re talking about. What exactly are nondisclosure agreements? What do they mean, and how do they work in sexual harassment cases?

Nondisclosure agreements (NDAs) are pretty much what they sound like: they are agreements included in a contract whereby one or both parties agree to limit what they say in the future about the dispute. In a case of employee sexual harassment, in essence—and this is a bit of an oversimplification—it works like this: A woman, through a lawyer or otherwise, tells her employer that she has been subject to sexual harassment. The company “investigates” it and says, “Well, we don’t know whether what you’re saying is true, but we don’t want to fight over it. Why don’t we agree to disagree. We’ll write you a check for some amount. It’ll be less than you want but more than we want to pay. And then both sides will walk away. Oh, and you’ll agree to give up any legal claims you might have had against us. And you’ll also agree to keep your trap shut or we’ll come down on you like a ton of bricks. Sound good?”

Like I say, that’s an oversimplification, but it’s really not far off.

Are All NDAs the Same?

Not at all! There are many different variations within NDAs. While most NDAs share some common characteristics, there is no one-size-fits-all required form. They can include, within certain broad parameters, anything that the employer and employee agree to.

The extent to which the NDA limits the employee can range from the fairly mild to the truly draconian. A mild NDA might restrict the employee from revealing what the settlement amount is but otherwise leave the employee free to talk about the dispute. A draconian NDA will prevent the employee not only from saying anything about the dispute at all, but it will also prevent the employee from participating in any other legal action against the employer. For instance, it would prevent the employee from talking to another lawyer representing a different employee seeking evidence for a different case.

NDAs can also be mutual, meaning that the employer will also agree not to say certain things about the employee. It is not uncommon for the employer to agree to also not disclosure the dispute or the settlement amount. (It’s an easy give for the employer: one of the primary reasons that companies settle is to avoid bad press.) The company might further agree to give the employee a good reference going forward.

The penalties for violating an NDA vary widely too. An NDA is a contractual agreement between the company and the employee. If the employee breaks or, to use a legal term, “breaches” the agreement, then the employer is entitled to have the court order the employee to pay money to the company for any harm it suffered. For that to happen, the company has to prove that it was damaged, usually by showing a monetary loss or some kind of measurable harm to its reputation. This is often hard to do. Imagine this exchange:

Judge: Okay, Walmart, I find that Ms. Johnson has breached the NDA by talking with her cousin about the lawsuit. Now, multibillion dollar company, how were you harmed by that violation?

Walmart: Um…

For that reason, NDAs will often include what is called a “liquidated damages” provision.

Liquidated Damages and Attorneys’ Fees

A liquidated damages clause is an agreement by both sides that the nonbreaching party won’t need to prove damages at all. Instead, if there is a breach, the parties agree to pay a set amount. For instance, a liquidated damages provision would say, “The party in breach will pay $10,000 for each breach of the agreement.” So, in the case above, Ms. Johnson would have to pay the company $10,000 for talking to her cousin about her settlement.

Some agreements go even further, requiring that the employee pay back the entire settlement amount if he or she breaches the NDA. Note that these are all matters that can be negotiated as part of a settlement, though the employee’s ability to demand changes will generally depend on how much, or little, leverage the employee has.

Attorneys’ fees are also a sleeper penalty in these agreements. For example, some NDAs require that the loser pay the winner’s attorneys’ fees. That often can be worse than the damages for the breach itself. Take Ms. Johnson above: let’s assume that she loses and has to pay liquidated damages of $10,000. Let’s further assume that under her agreement she also has to pay Walmart’s attorneys for all the time they billed going after her for her breach. Think that sum will exceed $10,000? You bet, by a lot.

On the other hand, in the case of a mutual NDA and a breach by the employer, the employee might be entitled to get attorneys’ fees and damages if the employer breaches the agreement. But that’s no easy thing to do.

Enforcing an NDA Against an Employer

Speaking practically here, while the employee has rights on paper, enforcing a NDA against a company can be difficult. NDA litigation is different from litigation over sexual harassment. It is, at bottom, a contract dispute. It is very rare to find an attorney who will take a contract dispute case on contigency. That means the employee will have to pay the lawyer—and that litigation can be expensive. Even if the employer is on the hook for attorneys’ fees if it loses, it has to lose first. And, between the employee and the employer, who do you think is in a better position to fund a knock‐down‐drag‐out contract litigation? Right.

Still, it’s not that the employee has no leverage. As discussed, most employers, all things being equal, want to avoid any allegations of sexual harassment becoming public. Litigation over an NDA can open that Pandora’s box for the company. For that reason, the company usually will take steps to avoid ever violating the agreement.

It is also important to understand that an NDA violation matters only if one side tries to enforce it. If an NDA says that an employee cannot discuss the NDA, but the employee does, nothing happens unless and until the employer decides to go to court and sue for it. There are any number of reasons why an employer might decide not to do that. First, it may not care anymore. If the settlement happened 10 years ago and all the parties involved in it are dead or no longer with the company, it’s very unlikely that an employer will want to go through the effort to fight over that breach, even if it learns of a violation. Second, even for a company, litigating an NDA is a hassle. Companies still have to pay their lawyers and a lawsuit can pull key staff away from other business objectives. Third, litigating an NDA is public; it may reveal many details that the company would rather keep out of the public eye.

When NDAs Are Breached

Although NDAs can be hotly contested during settlement negotiations, they’re often less important than either party believes. Often the company is convinced that the employee is just champing at the bit to start a blog and a social media channel solely to trash the company’s representation. That’s usually the furthest thing from the truth. Most of the time, the employee has no interest whatsoever in revisiting this chapter of her life. She made her peace with it and is ready to move on.

The employee, on the other hand, is often convinced that the employer will hire private investigators to tail her for years watching for any hint of a violation. This is also usually not true. While an employer may certainly enforce the agreement against a blatant violation—say, if the employee starts a blog—it rarely has the resources or the will to watch for minor violations. For that reason, in the vast majority of cases, the agreement gets signed by both parties, the check gets written, and the settlement agreement, along with the NDA, sits in a file, where it will remain, forever untouched.

Except for the exceptions. Let’s turn to how NDAs play out in high-profile cases.

In many newsworthy sexual harassment cases, like the one involving Harvey Weinstein, we’re seeing women who settled earlier civil cases coming forward, very likely in violation of their NDA clauses. What gives?

These women made the decision that they would come forward with their stories in spite of the risk of being sued for an NDA violation. Remember that an NDA is only as good as a party’s willingness to sue to enforce it. Without a lawsuit, the NDA is as threatening as the piece of paper it was written on.

Will any of these accusers get sued now? As reported in the groundbreaking story by Ronan Farrow, Weinstein’s legal and PR teams took aggressive measures to try to suppress these stories. These efforts likely included angry letters about the legal liability these women would face if they violated their NDAs. Yet, many women came forward anyway.

And now—even though these women are probably squarely in violation of their NDAs—they probably will not get sued. Why do they get a pass? Because it is in Weinstein’s interest not to litigate the breach. The optics would be terrible. Imagine the headlines: “Multiple actresses report that Harvey Weinstein sexually harassed them; Weinstein sues them for not keeping quiet.” Ouch.

Imagine it this way: a ruthless, but cautious, thug encounters a young woman in a dark alley. He wants to take her purse. He could easily overpower her, but as he reaches out to grab her, she slips past him. She reaches the mouth of the alley, where the light streams in and pedestrians are strolling by. What does our thug do now? He might be able to grab his intended victim and pull her back into the darkness. But if he does, he might be seen by someone—and that person might be willing to try to stop him. Unwilling to take the risk, he lets her go—not because he is afraid of her, but because he is afraid of what the crowd might do if he is caught.

A version of this is happening in the Weinstein case and other recent high‐profile sexual harassment cases. These men have the means and probably the legal right to sue, but with the world watching, it would be a public relations disaster.

However, keep in mind that the first women to come forward and report harassment in violation of their NDAs don’t yet know how their disclosures will play out. Had this story languished in the B section of the paper, or worse, never received any sustained media attention, the outcome likely would be very different. Weinstein’s lawyers very well might have sued some of these woman, to potentially devastating financial effect.

Summing It Up

  • Nondisclosure agreements (NDAs) are contractual agreements in which the parties agree what one or both of them can and can’t say about a dispute.
  • NDAs vary in their terms—there are no standard forms for what they include.
  • For an NDA to be enforced, the nonbreaching party has to sue the breaching party in court.
  • Employers accused of sexual harassment in high-profile cases that have made national news don’t want to look any worse to the public than they already do, and the optics of suing your accuser are terrible. That’s why people can come forward with allegations of sexual harassment even if they are violating their NDAs to do so.

Are you negotiating a nondisclosure agreement, or are you already subject to one? If you have questions about your agreement or your obligation to keep quiet, please contact our office. We’d be happy to answer your questions and help you decide what to do next.

[gravityform id=”8″ title=”true” description=”true”]