Confidentiality agreements shielded Harvey Weinstein for years. Should they be legal?
Some states are making it harder for companies to conceal bad behavior through payouts.
According to an explosive New York Times exposé, Hollywood producer Harvey Weinstein has been sexually harassing female employees and actors for decades — and has used nondisclosure agreements and confidential settlements to cover up his behavior.
Employees of Weinstein’s company are required to sign agreements promising not to make statements that could harm the reputation of the firm or its top executives, the Times reports. And when female employees have sued Weinstein for harassment, he and his company have generally settled the claims confidentially — pairing payments with a condition that the plaintiffs not talk about the details of their cases.
Is it — and should it be — legal for employers to use confidentiality provisions to keep harassment claims secret? The Weinstein scandal raises these questions in a particularly stark way, although such provisions have long been controversial.
Confidentiality clauses have featured in a number of high-profile sexual harassment scandals. In November 2011, Politico reported that Herman Cain, then running for the Republican presidential nomination, had been accused of sexual harassment by two women who worked with him when he ran the National Restaurant Association; Cain’s employer had settled the claims with agreements that forbade the women to speak about the incidents.
Venture capital firm Kleiner Perkins offered to settle former employee Ellen Pao’s sexual harassment suit only if — according to Pao’s account — she signed an agreement limiting her freedom to talk about her experience. (She dropped her suit but declined to settle, saying she did not want to be silenced.) Fox News Channel likewise used confidentiality clauses in contracts with employees to protect its late chief Roger Ailes from sexual harassment claims.
These cases, and others, have led many to ask whether the enforcement of confidentiality clauses serves primarily to protect sexual harassers, allowing them to continue their abuses.
Federal law places limits on nondisclosure agreements, though some companies ignore those limits
The enforceability of confidentiality clauses — like the enforcement of contracts in general — is for the most part a matter of state law, though there are instances in which federal statutes intercede. For instance, the National Labor Relations Act of 1935, also known as the Wagner Act, prohibits employers from restraining employees in the exercise of their right to engage in “concerted activities” for the purpose of “mutual aid or protection.” (Much of the Wagner Act focuses on union organizing, but the protection for “concerted activities” applies regardless of whether workers are unionized.)
The states, for their part, may decide to disregard certain contractual provisions signed by workers and employers, as long as no federal law mandates enforcement. California, for instance, refuses to enforce “noncompete” agreements that limit employees’ ability to switch jobs.
Confidentiality clauses relating to harassment claims come in two basic flavors — and under existing law, the distinction between the two is significant. The first are agreements such as the ones that Weinstein Company apparently had employees routinely sign — broad waivers forbidding employees from making any critical comments that could harm the company’s “business reputation” or “any employee’s personal reputation.”
That kind of confidentiality clause — which prevents an employee or ex-employee from speaking about sexual harassment and other workplace misconduct — is generally considered to violate federal labor law, though lots of employers use them anyway. The National Labor Relations Board has ruled that “a confidentiality rule prohibiting employees from discussing their sexual harassment complaints among themselves” constitutes an unfair labor practice in violation of the Wagner Act. The Board has also held that an employer violates the Wagner Act when it requires employees to sign agreements promising not to “publicly criticize” the firm or its leaders.
The Wagner Act does not apply to domestic workers, independent contractors, or individuals employed as supervisors. Thus, an executive in Weinstein’s organization might lack protection under the act because she supervises lower-rung employees.
Companies have a freer hand to enforce confidentiality in legal settlements
A second type of confidentiality clause comes up in the context of settlement agreements between employees (or ex-employees) and employers, in which employees are paid to drop their claims and keep quiet about the matter. The National Labor Relations Board has not condemned that kind of confidentiality clause. Indeed, in an August 2016 decision, the board noted that it has long favored the “private, amicable resolution of labor disputes, whenever possible,” and that “an employer may condition a settlement on an employee’s waiver of [Wagner Act] rights if the waiver is narrowly tailored to the facts giving rise to the settlement and the employee receives some benefit in return for the waiver.”
One Democratic member of the board, Lauren McFerran, dissented from that decision, arguing that an employer’s use of confidentiality clauses as a “quid pro quo” for the settlement of workplace-related claims “has an impermissible chilling effect” on the rights of all employees to act collectively. But her view is likely to remain a minority position — especially now that President Donald Trump’s appointments have shifted the board in an employer-friendly direction. And while a federal court could in theory overturn the board’s view regarding confidentiality clauses in settlement agreements, that’s unlikely, as federal courts generally accord deference to agency interpretations.
A likelier avenue for legal change runs through state capitals. A number of states have passed “sunshine-in-litigation” laws that bar the enforcement of confidentiality clauses in settlements if they conceal information related to “public hazards.” One might reasonably argue that a pattern of workplace-based sexual harassment on the part of a powerful individual like Cain, Ailes, or Weinstein amounts to a “public hazard” to which these laws should apply.
Indeed, a Florida-based labor and employment attorney, Chloe Roberts, proposed precisely this theory in an opinion piece last November, but it does not appear that any court has addressed it yet. It also wouldn’t help much in the Weinstein case, because the Weinstein Company is based in New York, which has not passed a law against confidentiality clauses in “public hazard” cases. And even in states with such laws, it would be extraordinarily risky for a harassment victim who has signed a confidentiality clause to violate the provision in order to generate a test case.
Rather than waiting for such a test case, state legislatures might move proactively to pass laws that explicitly bar the enforcement of confidentiality provisions in settlement agreements applying to workplace-related sexual harassment claims. The upside of such a law would be clear: Serial harassers would lose the ability to buy silence from their victims. The allegations against Cain, Ailes, Weinstein, and others might have come to light many years earlier had such laws been in place.
Confidential agreements sometimes benefit the victims, too
But there are downsides too. For one, some victims might prefer to have confidentiality clauses in settlement agreements. Without the protection of a confidentiality clause, victims might be worried that a vindictive ex-employer will smear them in public or stymie their efforts to find a new job. A potential, but not perfect, solution might be to allow confidentiality provisions with one-sided opt-outs: The employer would not be able to speak out about the matter unless the employee speaks first.
A second concern is that disclosure of settlement amounts will lead to negative publicity for harassment victims: They might be tarred with accusations of money-grubbing, for instance. Victims might also have a general privacy interest in keeping compensation information to themselves. To address these and other concerns related to disclosure of settlement amounts, my University of Chicago colleague Saul Levmore and his co-author Frank Fagan at EDHEC Business School have suggested that confidentiality clauses could be enforceable as to the amount of settlement but not to the facts underlying the victim’s claim.
A third concern is that under certain circumstances, a ban on confidentiality clauses in settlement agreements may reduce the size of payouts to victims. Harassment defendants may be willing to pay more to settle claims if they can keep the allegations under wraps. And so if we want to ensure that victims are compensated financially for the harms they suffer, then perhaps there are instances in which we want them to be able to settle claims out of public view. (But as Levmore and Fagan note, a lone plaintiff likely does not know whether a defendant is a serial harasser who would be willing to pay a significant sum for silence. Thus, the plaintiff may lack the information and the bargaining power to extract a large payment in exchange for a confidentiality clause.)
The Supreme Court is examining whether employers can enforce confidentiality via mandatory arbitration
While these three concerns ought not outweigh the powerful case against confidentiality clauses, another obstacle may loom in the path of state-level legal change: the Supreme Court. Last Monday, the justices heard argument in a trio of cases concerning arbitration provisions in employment contracts. The employers in those cases, supported by the Trump administration, argue that a 1925 law called the Federal Arbitration Act mandates that federal and state courts enforce arbitration clauses as written even when those arbitration clauses come with strict confidentiality requirements.
While the cases before the Supreme Court do not involve sexual harassment allegations, the court’s decision could nonetheless affect confidentiality provisions related to harassment claims.
Consider the contract between former Fox News anchor Gretchen Carlson and her former employer. The agreement reportedly requires Carlson to bring any legal claim against Fox News in a private arbitration proceeding rather than in court, and adds that “all filings, evidence and testimony connected with the arbitration, and all relevant allegations and events leading up to the arbitration, shall be held in strict confidence.” Through its arbitration provision, that contract accomplishes virtually the same thing as a confidentiality clause.
Hopefully, the Supreme Court’s resolution of the arbitration cases will preserve the ability of states to experiment with sunshine-in-litigation laws applying to sexual harassment — and won’t allow employers to circumvent such laws by rolling confidentiality requirements into arbitration provisions. But the court has read the Federal Arbitration Act quite expansively in the past, and there is a risk that its decision might make it more difficult for states to override confidentiality clauses in arbitration agreements.
At least for now, though, state lawmakers retain the freedom to act. Federal lawmakers could act, too — say, by amending the Wagner Act to prohibit confidentiality clauses in harassment settlements. But notwithstanding attempts by Republicans in Washington to make hay of the Weinstein allegations, it’s hard to imagine this Congress passing — let alone our sexual-predator-in-chief signing — a sunshine-in-litigation law for harassment claims. While outrage is the natural first reaction to the Weinstein news, a call to your state senator or representative would be a sensible second reaction.
Confidentiality provisions that prevent victims from speaking openly about workplace sexual harassment are clearly a problem. And while there is room for debate about the shape of the remedy, the status quo is clearly not working. Legal change will likely depend on whether state lawmakers have the courage and creativity to craft legislation limiting confidentiality agreements.
The Weinstein revelations might be just shocking enough to inspire action.
Daniel Hemel, a frequent Vox contributor, is an assistant professor at the University of Chicago Law School.
The Big Idea is Vox’s home for smart discussion of the most important issues and ideas in politics, science, and culture — typically by outside contributors. If you have an idea for a piece, pitch us at thebigidea@vox.com.
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