Contractor Agreements Subject to Federal/State Law Prohibitions on Confidentiality and Nondisparagement
In yet another example of laws blurring the distinction between employees and independent contractors, organizations need to beware that the prohibitions on confidentiality and nondisparagement agreements embodied in the federal Speak Out Act and various state laws often are equally applicable to independent contractor agreements. The motive behind these prohibitions is driven by the egregiousness of the workplace behaviors that have been disclosed in the past several years, and the loopholes in existing laws that enabled such behaviors and kept them from being reported. There are, however, significant differences in the nature of the relationship between an employee and an independent contractor, which may lead organizations to incline toward retaining confidentiality clauses in agreements with their contractors to the maximum extent possible while complying with the new laws.
The Business Need for Confidentiality Assurances
Independent contractors, which may include consultants, gig workers, and others providing services to support an organization, typically have a more temporal connection to the organization by which they have been contracted than do employees. They may be providing services to multiple organizations simultaneously or serially, including in the same industry and among competitors. In order to effectuate the work for which they have been retained, independent contractors may also need access to, or otherwise be privy to, confidential, proprietary, or trade secret information pertaining to those organizations.
Organizations thus have significant, valid reasons to require independent contractors to execute agreements, as a condition of providing the contracted services, that impose confidentiality, nondisparagement and other restrictions. Typically in the past, organizations have drafted those agreements broadly, to protect their competitive information. Federal and state laws now require more precision, and failure to adhere to the laws’ strictures risks invalidating the entire confidentiality or nondisparagement clause, thereby leaving the organization exposed to the sharing of its competitive information with other organizations or the public.
Standard Contractor Templates May Violate Federal Law
The federal Speak Out Act requires organizations to ensure their confidentiality and nondisparagement clauses with independent contractors do not limit the contractors’ ability to disclose information related to a sexual assault or sexual harassment dispute. Provisions that may run afoul of the law include those that:
- broadly restrict disclosure of “all information that the organization makes available to the contractor;”
- prohibit disclosure of “Confidential Information,” defined to include not just proprietary information and trade secrets, but also “information about employees and employee relations, training manuals and procedures, information about recruitment method and procedures, employment contracts, employee handbooks…” and similar employment documents and information;
- define “Confidential Information” as information that that has been marked as “confidential” or “proprietary,” that has otherwise been identified as confidential or that, “due to its character and nature, a reasonable person under like circumstances would treat as confidential;” or
- prohibit disclosure of “Personal Information,” defined to include information that identifies, relates to, describes, or could reasonably be linked with a particular individual.
None of these examples, taken from real contractor agreements, were written with an intent to keep secret incidents of sexual harassment or sexual assault that might occur in the workplace. But each of them may, in fact, have that effect, which is why it would be prudent for organizations to review their contractor agreement templates and revise them to conform to the new federal law.
State Laws Also Impose Limits on Contractor Agreements
Various states have adopted their own restrictions on confidentiality and nondisparagement clauses. In some jurisdictions those restrictions apply equally to agreements with independent contractors. Organizations should note, for example:
- New York’s restrictions on any agreement to resolve a discrimination claim that would prevent the person who complained from disclosing the underlying facts and circumstances of the harassment, which extends to protect anyone with a viable discrimination claim (including independent contractors);
- Illinois’s restrictions on all agreements that preclude “truthful statements” regarding alleged unlawful harassment, discrimination or retaliation, which apply to both employees and non-employees (contractors and consultants); and
- Washington state’s restrictions on provisions that limit employees (defined to include independent contractors) from disclosing conduct, or the existence of a settlement involving conduct, that the employee reasonably believed under state or federal law to be a violation of EEO laws, a wage and hour violation, sexual assault, or otherwise against a clear mandate of public policy.
More of these laws are being passed each year, and states that were early adopters have been looking to other locations and amending their laws accordingly to impose greater restrictions on organizations. Organizations that wish to protect their confidential and competitive information may need to revisit their existing agreements and consult with legal counsel to ensure they are legally enforceable and their business interests are protected as much as possible.
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