Speak Out Act: Exploring the Impact on Workplace Agreements in 2024

Employment contracts are useful tools for companies to craft expectations in the employer-employee relationship. They are also key in protecting organizations’ interests. Employment contracts can help ensure a company can protect its reputation, goodwill and proprietary information, such as intellectual property and trade secrets. The use of various kinds of standard employment law clauses in employee contracts, particularly in severance agreements, has the potential to provide employers with enhanced protections.

Recently, the use of some kinds of employment contracts has become more complicated and uncertain. On April 23, 2024, the Federal Trade Commission (FTC) issued the final rule effectively banning almost all non-compete clauses in a move that will impact over 30 million people in the U.S.¹ This action severely curtails the use of non-compete clauses in employment contracts. Similarly, the Speak Out Act of 2022 limits the use of non-disclosure agreements (NDAs) in some circumstances.²

In this post, we will learn more about the impact of the FTC’s final rule banning non-competes and the Speak Out Act of 2022 on non-compete agreements, NDAs and non-disparagement agreements.

A non-compete clause limits what an employee can do once they leave their current employment. This can include limiting their work in the same field for a certain period of time or barring them from working with a competitor. The idea is that an employee might take trade secrets, potential customer lists, valuable means of doing business and other key intellectual property with them to the next company.

Prior to the FTC’s ban, employees may have been required to sign a non-compete agreement as part of their employment contract. However, when the FTC’s Non-Compete Clause Rule takes effect, employers cannot require a non-compete clause as part of an employment contract for employees or independent contractors.

Non-compete clauses can still be utilized in some limited circumstances. For example, employers may still enforce existing non-compete clauses with senior executives who make more than $151,64 in annual compensation and are in a policy-making position, though they may not utilize such clauses in new contracts.¹ Buyers and sellers in the sale of a bona fide business may also employ non-compete clauses in their contracts. The FTC ban also does not curtail the use of non-compete clauses in certain industries that the agency does not have authority over, including some non-profits, banking and financial institutions, and air carriers, common carriers and foreign air carriers.

Currently, the FTC’s new rule faces a barrage of legal challenges to the agency’s authority before it becomes effective on September 4, 2024. However, non-compete clauses are not the only tool that employers have at their disposal to protect their interests in the event of an employee separation.

Savvy employers can use non-disclosure agreements (NDAs) and other aspects of trade secret law to do some of the work that non-compete clauses used to do. However, recent changes in the law urge caution in implementing these agreements. The Speak Out Act and the FTC ban of non-compete clauses mark an important moment of autonomy to employees that has not previously existed. These two new limitations are big, making it so NDAs cannot be used to silence sexual harassment and assault disputes, and that employees are not limited in movement from one employer to another.

Let’s look closer at NDAs and the Speak Out Act.

A non-disclosure agreement (NDA) is an agreement between businesses or employers and employees to not disclose confidential information for a certain period of time. The agreement defines what is to be considered confidential, and how long that confidentiality lasts. This is the key means of protecting trade secrets.

A trade secret is anything economically valuable that a company keeps secret. Trade secrets can include a variety of proprietary information like customer lists, formulas, business and marketing planning. If a competitor learns information and it becomes less advantageous to the company that owns it, that information can be considered a trade secret. Trade secrets are protected by a web of interlocking state and federal trade secret laws.

Trade secret laws can be augmented by an NDA, which protects information and ensures that individuals subject to the NDA do not disclose valuable information to a competitor. The touchstone for an NDA, however, is reasonableness. NDAs that are not reasonable will not be enforced.

A non-disparagement clause is often in the severance agreement when an employer and employee end their relationship. In a non-disparagement agreement, the former employee agrees not to make statements or representations that would harm or disparage the company. The National Labor Relations Board found that overly broad non-disparagement clauses, along with some kinds of confidentiality clauses, are unfair under the National Labor Relations Act.³ Non-disparagement clauses are often used in conjunction with confidentiality agreements or NDAs in severance agreements to protect a company’s interests. The Speak Out Act, however, limits the use of NDAs and non-disparagement clauses in circumstances involving sexual assault and sexual harassment.

The Speak Outs Act, signed into law by President Biden on December 7, 2022, prohibits the enforcement of NDAs in the case of sexual assault. This was a bill that came out of the #MeToo Movement when more people became aware that NDAs were being used to silence employees and others who had been sexually assaulted.

This was the second law Biden signed in 2022, the first being the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, which banned compulsory, pre-dispute arbitration clauses for allegations of sexual harassment and sexual assault in the workplace.⁴ The Speak Out Act supported this legislation by prohibiting the enforcement of non-disclosure clauses and non-disparagement clauses related to sexual harassment and/or sexual assault.

Senator Kristen Gillibrand introduced the Speak Out Act bill in 2022, which passed both the House (with Democratic and Republican support) and the Senate unanimously.

The text of the Speak Out Act begins with “findings,” which contextualizes why the law was passed. It begins by noting that sexual harassment and assault affect millions of Americans (Sec. 2(1)).⁵ The findings further note that 81% of women and 43% of men “have experienced some form of sexual harassment or assault throughout their lifetime” (Sec. 2(2)) and that 1 in 3 women have faced sexual harassment in the workplace, with up to 94% never filing a formal complaint (Sec 2(3)).⁵ The findings also note that women often leave their occupation or the industry when this occurs, or “pass up opportunities for advancement” (Sec 2(4)).⁵

The law defines non-disclosure clauses as requiring parties to a contract to “not disclosure conduct, the existence of a settlement involving conduct, or information covered by the terms and contract…” (Sect 3(1)).⁵

Non-disparagement is defined as a provision in a contract or agreement “that requires one or more parties … not to make a negative statement about the other party that relates to the contract, agreement, claim or case” (Section 3(2)).⁵

A sexual assault dispute involves a “nonconsensual sexual act or contact,” defined in 18 U.S.C. 2246, or similar Tribal or State laws, and includes when the “victim lacks capacity to consent” (Section 3(3)).⁵

A sexual harassment dispute involves “conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal or State law” (Section 3(4)).⁵

The Speak Out Act of 2022 limits the enforceability of non-disclosure and non-disparagement clauses when it is related to sexual assault disputes and sexual harassment disputes. After December 7, 2022, employees who sign an agreement that includes a non-disparagement clause or a non-disclosure clause before sexual harassment or assault occurs and a dispute arises are not bound by these agreements. The Speak Out Act of 2022 renders such clauses judicially unenforceable. If the NDA is signed after the dispute occurs, the Speak Out Act does not apply or prohibit non-disclosure or non-disparagement clauses.

It is important to note that the Speak Out Act of 2022 does not prohibit the use of NDAs and non-disparagement clauses in other kinds of factual circumstances. In fact, the Speak Out Act of 2022 explicitly states that employers can still use non-disclosure agreements and non-disparagement agreements to protect trade secrets and proprietary information. Employers may still use NDAs and non-disparagement clauses within an employment agreement, a severance agreement or any other kind of contract.

State and local laws may have even harsher restrictions, and they are still good laws as long as they are “at least as protective of the right of an individual to speak freely, as provided by this Act” (Sec. 4(b) and (c)).⁵ The Act applies to claims filed under Federal, State or Tribal law (Sec 5).

There are other state laws like California’s Silenced No More Act that bans settlement agreements where the employee cannot disclose factual information related to sexual misconduct.⁶

Putting these two federal restrictions in place may have a major impact on the employment environment. The interaction of the FTC ban on non-compete agreements and the Speak Out Act’s ban on non-disclosure agreements that address sexual assault and sexual harassment will have clear benefits for employees. If the FTC final rule takes effect, employees will be more free to leave a company to take a position with a competitor. And with the Speak Out Act of 2022 in place, employees will no longer be forced to remain silent in the wake of sexual assault or sexual harassment in the workplace—even if they signed an agreement saying they will do so. The interaction of the current agency rules and expanded legislation will help to bring more dignity and autonomy to employees.

Federal and state laws and regulations that impact HR professionals and people managers are ever-changing. Tulane Law’s online Master of Jurisprudence in Labor & Employment Law program gives you the skills you need to manage these changes to ensure your workplace stays compliant. Get the legal knowledge you need to push you forward to the next level of your career.

Through our targeted curriculum, daily conversations with classmates and faculty and through your master’s capstone experience, you’ll learn practical lessons and hone new skills that you can put to immediate use. You’ll graduate with the ability to navigate the complexities of employment contracts, read and understand legislation, train employees, deal effectively with unions, engage in collective bargaining, mediate disputes or participate in the arbitrations of labor disputes, create personnel manuals, lead executive searches that are EEOC-compliant and much more.

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