Don’t wait for legislation banning NDAs: Write ethical policies now

Companies across the United States should be closely following the California State Legislature hearings on the “Silenced No More Act,” which would prevent the use of nondisclosure agreements (NDAs) to silence employees from speaking up about all forms of discrimination and harassment.

The legislation was introduced in response to the stunning claims brought forward by former Pinterest employees alleging a pattern of racial and gender discrimination, harassment and retaliation. They courageously called attention to the hypocrisy of Pinterest’s aspirational comments on social issues even though the company had required them to sign NDAs.

As attorneys who work with shareholders to hold companies accountable for this misconduct, these allegations have deeply impacted our work. They formed the basis of an ongoing shareholder derivative lawsuit that a state pension fund we represent brought against Pinterest’s board of directors and top executives for participating in and otherwise protecting powerful executives who are alleged to have discriminated against Pinterest employees.

Failure to recognize this necessity will lead to future corporate scandals as multiple accounts of the same type of misconduct in the workplace come to light.

The Silenced No More Act would extend existing laws that limit the use of NDAs. Such laws are important because NDAs are intended to protect executives by keeping their harassment, discrimination and retaliation under wraps. That NDAs chill the voices of employees who have already been victimized makes them even more toxic. NDAs cause women to fear reprisal from the company, sometimes even incorporating financial penalty clauses, long after their individual claims have been resolved.

The Silenced No More Act should pass swiftly and be a model for other states, but this is what all companies throughout the country should be doing on their own, rather than waiting for legislation to drag an ethical NDA policy out of them.

Failure to recognize this necessity will lead to future corporate scandals as multiple accounts of the same type of misconduct in the workplace come to light. It will continue to uphold an unsustainable corporate system where executives in positions of power assume they will be protected no matter how unlawful their behavior toward others in the workplace.

We have seen from our investigations the compounding impacts of NDAs and how they allow problems to fester over years.

The two of us, working with others and on behalf of Alphabet shareholders, were part of the team that led a groundbreaking $310 million settlement with the tech company that led to historic diversity, equity and inclusion (DEI) reforms at the company. That settlement was the result of a shareholder derivative lawsuit where stockholders alleged that executives and board members violated their fiduciary duties by enabling a double standard that allowed executives to sexually harass and discriminate against women without consequence.

In that case, we believe Alphabet’s “culture of concealment” was driven in large part by the silencing effects of NDAs.

The duration of misconduct, enabled by NDAs, goes far beyond Alphabet and Pinterest. There is no shortage of #MeToo scandals at powerful companies, many with presences in California, that were exacerbated by muzzling NDAs. Weinstein Company, Wynn Resorts, NBC and 21st Century Fox are prominent examples of companies that first tried to keep allegations quiet through the use of NDAs and later faced a firestorm of allegations from former employees.

Fortunately, the landscape surrounding discrimination and harassment in the workplace is changing. Shareholders, workers, customers and other key business stakeholders are becoming more active in demanding that companies stop protecting harassers.

All of this should send a message to boards and C-suite executives that they must set the tone from the top and they are far better off being proactive than reactive. That means actively creating a company culture where DEI is a foundational component — not an afterthought. It also means intentionally prioritizing transparency and proactively doing away with policies that are antithetical to that goal, like NDAs that are intentionally designed to suppress the voices of employees.

The public and shareholders want to be associated with companies that do right by their employees. Business should recognize this change from a culture of compliance to one of equity and inclusion and embrace this new reality by stopping the practice of requiring complainants to enter into NDAs and fostering a culture of inclusion and accountability.

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