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Weighing risks of using nondisclosure agreements in sexual misconduct cases

"I want my voice back," wrote former FOX News Channel (US) anchor Gretchen Carlson in a recent op-ed published in The New York Times. "I want it back for me, and for all those silenced by forced arbitration and [nondisclosure agreements]."

Carlson grabbed headlines in 2016 when she reached a multimillion-dollar sexual harassment settlement with her former employer's cable news network. Her story was chronicled in 2019's Oscar-nominated film "Bombshell" along with those of other women at FOX News under the leadership of Roger Ailes, chairman and CEO of the company where he worked for 20 years before resigning the year of Carlson's settlement. Carlson has expressed frustration that she was unable to participate in the retelling of her own story in TV and film adaptations due to the terms of her settlement.

She is now fighting to be released from her nondisclosure agreement, or NDA, with Fox so that she can legally discuss her experience at the company. As part of that effort, Carlson recently launched a nonprofit called "Lift Our Voices," which aims to prevent companies from using NDAs to cover up workplace sexual misconduct and discrimination.

Over one-third of the U.S. workforce is bound by an NDA, according to a recent Vanderbilt Law Review study. Companies generally use NDAs as a means of protecting confidential information, such as the prototypes of a product or sensitive financial or customer data. However, NDAs can also be used to discourage employees from fully pursuing sexual or other misconduct allegations against an employer, a legal tactic that is increasingly under scrutiny thanks to cases such as Carlson's.

'Bad cultures' reinforced

"Sometimes, [an NDA] enables businesses that have had cultures of sexual harassment or poor monitoring of sexual harassment to get away with those bad cultures and retain problematic employees," Scott Altman, a law professor at the University of Southern California, said in an interview.

Eliminating NDAs related to sexual misconduct altogether would create "appropriate incentives" for victims to come forward without fear of discrimination or retaliation, Altman said.

He also believes companies should aim to be more transparent about their handling of sexual misconduct allegations, as it would "go a long way" toward ending continued abuse.

Governance matter

The ethical, legal and reputational importance of addressing questionable corporate conduct is not lost on many boardrooms.

One reason is that their investors have amplified calls to provide clearer disclosures related to their handling of sexual misconduct, said Courteney Keatinge, senior director of environmental, social and governance research at proxy advisory firm Glass Lewis.

She pointed to a proposal put forward at the annual shareholder meeting of Google LLC parent Alphabet Inc. in 2019, which urged the company to stop requiring employees to sign involuntary NDAs for "unlawful" discrimination or misconduct, among other "inequitable employment practices." The proposal was defeated, with the company saying that it has developed a "cogent" set of policies addressing harassment, discrimination and retaliation.

Despite the resolution being voted down, Keatinge sees it as a harbinger of change.

"Unlike some of these other kinds of environmental and social issues, like water, plastics or greenhouse gas emissions, this is something that's material to every single company," she said in an interview. "Investors are very concerned with how companies are handling it."

Another multinational company, Comcast Corp., recently received a shareholder proposal from investment management firm Arjuna Capital and women's advocacy group UltraViolet, calling on Comcast to conduct an independent investigation into its "failures to prevent" workplace sexual harassment and the resulting financial risks to shareholders. Arjuna Capital, which focuses on sustainable and impact investing, cited sexual harassment allegations at Comcast-subsidiary NBC against on-air personalities, such as Matt Lauer, and claims against managers at Comcast call centers.

Comcast has petitioned the U.S. Securities and Exchange Commission to block the resolution before it can reach a shareholder vote. Attorneys representing Comcast have said the company has "clearly defined" and "well communicated" policies regarding harassment and discrimination and highlighted the ways it has strengthened its policies and training on sexual misconduct. Notably, in October 2019, NBC announced that former NBC News employees who signed NDAs with the network and felt that they had been sexually harassed were free to share their stories outside the company.

But that has not satisfied everyone. "In the age of #MeToo and Time's Up and so many revelations into how women are treated in the workplace, it's a tone-deaf response," Natasha Lamb, managing partner at Arjuna Capital, said in response to Comcast's efforts to block the proposal for an independent investigation.

Arjuna Capital's Lamb said in an interview that when workplace sexual misconduct is exposed, "then and only then can it be stopped."

"If you continue to lock it up in a black box, nothing is going to get better," she said.

Bottom line

Continuing to use NDAs as a tool to silence sexual misconduct complaints could have a corrosive effect on companies' reputations and, eventually, profits, said Katherine Pease, head of impact strategy at investment advisory firm Cornerstone Capital Group.

"There's the risk of declining revenues from concerned customers who decide to use their purchasing power to go to places that have better policies around sexual harassment," she said.

Pease said companies that continue to use NDAs in this way could also face high internal costs resulting from employee turnover and the inability to attract top talent.

Lawmakers respond

The scrutiny of corporate conduct is happening amid a rise in reported workplace harassment cases. After declining every year since 2010, more than 7,600 sexual harassment claims were filed in 2018 with the U.S. Equal Employment Opportunity Commission, which administers and enforces federal laws against workplace discrimination, representing a 14% increase from the prior year.

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A number of U.S. states are wading into the fray by targeting NDAs.

New Jersey, for instance, passed a bill in March 2019 that renders unenforceable any provision in an employment contract that has "the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment." Other states, including California, Louisiana, Tennessee, Virginia and New York, have also passed similar laws.

Colorado, Hawaii, New Mexico, Pennsylvania, Rhode Island and West Virginia are working on laws around the topic.

At the federal level, lawmakers in 2019 introduced a bipartisan bill, the Ending Forced Arbitration of Sexual Harassment Act, which would prohibit nondisclosure and nondisparagement clauses covering workplace sexual harassment.

Lawmakers are specifically focused on NDAs since they view action on this front as a "more concrete" way of tackling the broad and oftentimes pervasive issue of workplace sexual harassment, said Suzanne Hultin, program director at the National Conference of State Legislators, a bipartisan nongovernmental organization facilitating the exchange of information among state legislatures.

"NDAs are one area that policymakers feel like they actually ... can potentially do something about," Hultin said.

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