Lawmakers Consider Sweeping NDA Legislation

The legislature’s Judiciary Committee held a public hearing March 20 on two sweeping bills that effectively ban nondisclosure agreements for workplace discrimination claims and expose employers to financial penalties for noncompliance.

SB 361 and Section 3 of SB 4, while different in statutory approach, both effectively do the same thing: ban NDAs in employment agreements and settlements and create new causes of action for employees that are reprimanded for disclosing conduct they “reasonably believe” to be discriminatory.

Under SB 3, an employee is liable for a discriminatory practice if they take an adverse action against any employee or independent contractor for disclosing conduct they reasonably believe to be a discriminatory practice. 

The bill also makes it a discriminatory practice for an employer to take adverse action against an employee who disparages the employer for engaging in conduct the person reasonably believes to be a discriminatory practice.

These new cause of action would expand the state’s current anti-retaliation statute that protects employees from adverse actions.

‘Discriminatory Practice’

For example, Section 46a-60(4) of the General Statutes makes it a discriminatory practice for “any person, employer, labor organization or employment agency to discharge, expel or otherwise discriminate against any person because such person has opposed any discriminatory employment practice or because such person has filed a complaint or testified or assisted in any proceeding …”

The new causes of action are predicated on the subjective belief of the employee as to whether discrimination occurred and whether they were punished for “disclosure,” which is left undefined.

In addition, both bills prevent an employer from taking any kind of adverse action against an employee for making claims of discrimination, no matter how unfounded, outrageous, or incredible those claims are, as long as the employee subjectively believes the claims are true.

Both bills prevent any kind of adverse action against an employee for making claims of discrimination, as long as the employee believes the claims are true.

Both bills also make it a discriminatory practice if an employer requires or requests a prospective, current, or former employee or independent contractor to enter into, or enforce, an agreement, containing a provision that is void.

SB 4 stipulates that void provisions include “any provision in an agreement that prohibits disparagement or disclosure relating to conduct the employee or independent contractor reasonably believes to be a discriminatory practice.

That’s regardless of whether actual discrimination occurred, so long as the employee “reasonably believes” it, then any provision that bars the employee from talking about it would be prohibited.

Nullifies NDAs

In practice, this effectively nullifies nondisclosure agreements in both preemptive agreements, discrimination claims, and severance or separation agreements.

In practice, settlements are often pragmatic resolutions to legal disputes, allowing both parties to avoid the time, expense, and uncertainty of prolonged litigation.

Employers may choose to settle for various reasons, including mitigating reputational damage, avoiding disruption to business operations, and minimizing the risk of escalating legal costs.

Without the option of an NDA, employers may be more reluctant to settle discrimination claims.

Similarly, employees may opt for settlement to secure financial compensation, closure, and the opportunity to move forward.

While settlements involve a financial transaction, they do not inherently imply wrongdoing on the part of the employer.

Without the option of an NDA and preventing an employee from publicly disparaging them, employers may also be more reluctant to settle discrimination claims, leading to prolonged legal battles that are costly and time-consuming for both parties.

Statutory Damages, Retroactivity

As drafted, any employer who enters into a banned NDA or confidentiality agreement with an employee would be liable for a minimum of $10,000 in statutory damages.

Both bills also impose a statutory minimum of $10,000 for employers that take adverse action against an employee who discloses conduct the employee reasonably believes to be a discriminatory practice.

While SB 4 is silent on retroactivity, SB 361 stipulates that NDAs entered into before October 1, 2024 shall be void and unenforceable only where such provision was entered into at (1) the outset of employment; or (2) during the course of employment. Damages for enforcing these agreements would be limited to those relating to preventing the enforcement of the provision.

Both bills now await committee action.

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For more information, contact CBIA’s Wyatt Bosworth (860.244.1155) | @WyattBosworthCT.