Ethical NDA Policies: Don't Wait for a Ban

The Emerging Trend: Challenging Non-Disclosure Agreements in Workplace Misconduct Cases

Organizations nationwide should be monitoring the hearings in the California State Legislature concerning the “Silenced No More Act.” This proposed legislation aims to restrict the application of nondisclosure agreements (NDAs) in situations where employees wish to report instances of discrimination and harassment of any kind.

Origins of the Legislation and Recent Allegations

The introduction of this bill stems from significant allegations made by former Pinterest personnel. These individuals detailed a pattern of racial and gender discrimination, alongside claims of harassment and subsequent retaliation. Their courageous actions brought to light a perceived inconsistency between Pinterest’s public statements on social responsibility and its internal practices, which included the mandatory signing of NDAs.

Impact on Shareholder Accountability Efforts

As legal professionals representing shareholders focused on corporate accountability, these accusations have profoundly influenced our work. They served as the foundation for an ongoing shareholder derivative lawsuit. This suit, brought by a state pension fund we represent, targets Pinterest’s board of directors and senior leadership, alleging their involvement in shielding executives accused of discriminatory behavior against Pinterest employees.

The Problematic Nature of NDAs

The Silenced No More Act seeks to broaden existing legal limitations on NDA usage. These limitations are crucial, as NDAs often function to protect executives by concealing instances of harassment, discrimination, and retaliation. The chilling effect NDAs have on employees who have already experienced harm renders them particularly damaging.

NDAs can instill fear of repercussions, even including financial penalties, in women long after their individual claims have been settled.

A Call for Proactive Policy Changes

While the swift passage of the Silenced No More Act and its adoption by other states would be beneficial, companies across the country should independently implement ethical NDA policies. Waiting for legislative action is not a sufficient approach.

A failure to acknowledge this necessity will likely result in further corporate scandals. Repeated instances of similar workplace misconduct will continue to emerge, perpetuating a flawed system where executives believe they are shielded from consequences regardless of unlawful behavior.

The Long-Term Consequences of Silencing Victims

Our investigations have consistently demonstrated the cumulative and detrimental effects of NDAs, allowing problematic situations to persist for extended periods.

Precedent-Setting Settlements and the Role of NDAs

We were part of the legal team that secured a landmark $310 million settlement with Alphabet, representing Alphabet shareholders. This settlement spurred significant diversity, equity, and inclusion (DEI) reforms within the company. The case originated from a shareholder derivative lawsuit alleging that executives and board members breached their fiduciary duties by tolerating a double standard that allowed executives to sexually harass and discriminate against women without facing repercussions.

In this instance, we believe Alphabet’s “culture of concealment” was largely fueled by the silencing impact of NDAs.

A Pattern of Misconduct and the Use of NDAs

The duration of misconduct facilitated by NDAs extends beyond Alphabet and Pinterest. Numerous #MeToo scandals at prominent companies – including those with a significant presence in California – have been worsened by the use of restrictive NDAs. The Weinstein Company, Wynn Resorts, NBC, and 21st Century Fox are notable examples of organizations that initially attempted to suppress allegations through NDAs before ultimately facing widespread accusations from former employees.

A Shifting Landscape and Increased Stakeholder Activism

The environment surrounding workplace discrimination and harassment is evolving. Shareholders, employees, customers, and other key stakeholders are increasingly demanding that companies cease protecting perpetrators.

The Importance of Proactive Leadership

This trend should serve as a clear signal to boards and C-suite executives. They must establish a strong ethical tone from the top and prioritize proactive measures over reactive responses. This includes actively cultivating a company culture where DEI is a core principle – not an afterthought.

It also necessitates intentionally prioritizing transparency and eliminating policies that contradict this goal, such as NDAs specifically designed to suppress employee voices.

Aligning with Public and Shareholder Expectations

The public and investors are increasingly drawn to companies that prioritize the well-being of their employees. Businesses must recognize this shift from a focus on mere compliance to a commitment to equity and inclusion. Embracing this new reality requires ceasing the practice of requiring complainants to sign NDAs and fostering a culture of accountability and inclusivity.