Defining Non-Disparagement Agreements
A non-disparagement agreement is a nondisclosure agreement that targets a very specific form of damaging material not falling under the typical provisions we see in employment contracts. It’s important first to consider what disparagement is because the agreement is designed to prevent it. Disparagement is making statements that bring someone or some entity into discredit or contempt or that negatively affect the attitude of others toward the person or entity, such as by undermining their credibility. So, for example, if a former employee is publicly calling their former employer a bad place to work or blaming them for their inability to find future employment , this might constitute disparagement.
These agreements are commonplace in the world of legal settlements, often with regard to employment issues. It is also possible to find non-disparagement clauses in employment contracts.
Non-disparagement agreements, like most contracts, are governed and enforced by standard contract law, which means they are only enforceable if there is mutual consent, consideration, definite performance and capacity by both parties. So, you can’t just design your non-disparagement agreement to cover absolutely everything, or it may simply not hold up in court if that section is ever challenged, based on the fact that it must meet at least the basic contract requirements of definitiveness and capacity.
Foundational Components of a Non-Disparagement Clause
As with any legal term, there are specific elements that typically need to be included in a non-disparagement clause in order for it to stand up in court. While these elements may vary somewhat from case to case, the most common components are:
- Clear and precise language detailing what will and what will not be considered disparaging. There is a precedent for loose wording, but if you leave it up to interpretation as to what does or does not violate the non-disparagement clause, you are giving the other party a clearer path to a non-compliance argument.
- Scope. The non-disparagement language should be worded to clearly define the situations in which it will and will not be enforceable. This will vary depending on the interaction between the parties and the individuals involved in the situation.
- Duration. Non-disparagement clauses that specify how long the agreement will be in place are more likely to be enforced. Therefore, your clause should designate the length of time after which the agreement will expire.
- Geographical scope. Here as well, it’s necessary to define just how far beyond your immediate geographical area this agreement will reach. It may be necessary to address internet or social media situations that impact individuals outside of your immediate vicinity.
In addition to these four elements, it’s important that the language used in the agreement is clear and legally binding.
Purpose and Use of Non-Disparagement Agreements
Non-disparagement agreements are beneficial for a variety of reasons. Two common justifications for non-disparagement agreements include protecting the privacy of the employee’s compensation and the business’s proprietary information and protecting the business’s reputation. Both of which can delay or prevent litigation and spur faster settlements when necessary.
Privacy Concerns
As previously discussed, the terms of an employee’s compensation package may be listed in the agreement if both parties agree. Additionally, many bonuses, stock options, and other incentive pay are calculated based on the employee’s performance. In addition to the 2019 NYSLR, for example, the employee’s future job prospects may be impacted by the agreement, as potential employers may desire information regarding his or her previous performance before making an offer. Clearly, the specifics of a severance package may be a contentious point in negotiations. On the employer’s side, knowledge of how an employee tallied enough sales or procured enough referrals to earn a raise could lead to resentment among the other employees. Such concerns may be addressed through non-disparagement agreements. Explaining how the total figure was determined would likely allow the employer to preempt unwanted questions.
Safeguarding Employer’s Reputation
A business with an otherwise pristine reputation can quickly tarnish itself once an employee is wrongfully dissatisfied with their treatment. Allegations of harassment, discrimination, or physical harm can spread quickly. The potential risks are magnified if the employee complains to the media, publicizes their story through social media, or goes into business for him or herself within a competing industry. The employer may fear that once these allegations enter the public domain, the liability or potential liability can be immense and insurmountable. Non-disparagement agreements are a solution that some consider mutually beneficial because the employee is compensated in exchange for his or her silence.
Enforcement and Legal Considerations
Non-disparagement agreements can sometimes be more enforceable than non-compete agreements in certain states, like Florida. On one hand, non-disparagement agreements are comparably common and have been an integral part of restaurant, software, technology, and numerous other industries where executives and management personnel work. On the other, at-will employment in most cases affords employers the right to terminate any at-will employee at any time with or without just cause and for any reason not protected by law. So really, how enforceable are non-disparagement agreements? Do they hold water in court, and what happens if they are breached?
Legal Enforceability
The first question a court will consider when investigating the enforceability of a non-disparagement agreement is whether the plaintiff and defendant in the dispute are considered parties to the agreement. In other words, if the agreement did not specifically name the plaintiff and defendant as parties, in many cases neither party will get to argue the merits of the agreement. This can be one of the weaknesses of non-disparagement clauses when it comes to drafting these provisions. Employers may make the document airtight by naming the plaintiff and defendant as parties to the agreement, or give a broad non-disparagement clause to cover the employer and all of its "related" parties, as well as any parent, subsidiary or affiliated corporation, and all officers, directors, agents, employees, successors, assigns, and other related parties of the company.
Potential Causes of Action
The second avenue that a court will examine, assuming the parties are both privy to the agreement, is whether breach of the non-disparagement clause can be a cause of action for breach of contract, or whether the agreement is enforceable by a third party. For example, if the agreement names an employer and its officers, directors, agents, and employees as parties to the agreement, and the employer’s competitor is named in the agreement, the competitor may have a claim for breach of contract as a third-party beneficiary.
Relevant Factors
As is often the case with any type of contract analysis, a non-disparagement agreement will go under a microscope and will be subject to an in-depth review on a case-by-case basis. Some of the most commonly reviewed factors in determining the legal enforceability of the non-disparagement clause include whether:
A non-disparagement clause does not require non-disparagement of only the plaintiff former-employer, and will often include a seemingly infinite number of parties from related companies to their officers, directors, agents, and employees, which means that those third parties can be considered beneficiaries under the agreement and sue for breach if the agreement is violated.
In every case, the enforceability of a non-disparagement agreement is highly fact and circumstance specific, but the general rule of thumb is that in order for the provision to be enforced, the court will likely require a non-disparagement agreement that is no broader than the scope of the subsequent non-compete, perhaps even narrower. There are many times when a non-disparagement provision is helpful to a case going to court.
A non-disparagement agreement is not a silver bullet, however, and will not always apply when you believe it should. The court will need to weigh the agreed-to terms against the words or actions you are attempting to silence and balance out the parties’ rights to free speech.
Non-Disparagement Agreements vs. Non-Disclosure Agreements
Non-Disclosure and Non-Disparagement of Company Information and Businesses, on the Other Hand, are Distinct Concepts.
A non-disclosure agreement (NDA) prohibits an employee from revealing certain types of confidential company information to outsiders. NDAs typically only prohibit the disclosure of particular company information. For example, an employer may wish to prevent a certain employee from revealing trade secrets or other sensitive company information to its competitors. Speaking in general terms, NDAs most often involve the disclosure of certain company confidential information. As such, NDAs do not very often involve confidentiality agreements by the employee regarding his or her own personal information to outsiders.
Non-disparagement agreements do not fall within the realm of either type of confidentiality agreement. Rather, a non-disparagement agreement prohibits an employee from publicly disparaging or saying negative things about the employer or its goods or services, or publicly disparaging a company or its officers, directors, or employees. Disparagement could include the use of Facebook, Twitter, LinkedIn, or other social media. Non-disparagement agreements will not prevent the employee from speaking to the government in response to a subpoena or court order, from testifying in court, or from engaging in other protected concerted activity regarding wages, hours, or other terms and conditions of employment.
Creating an Enforceable Non-Disparagement Agreement
It is imperative to present these provisions in simple, plain English. Explain fully how all of the provisions operate from a practical standpoint and in the real world. State the policy rationales behind the agreement and how compliance will better serve – e.g., the departing employee sole interest that he or she no longer has a job, has no more salary, etc. Compile a bullet point list of what is and what is not allowed; including examples.
For instance, for the departing employee, one should state that this includes but is not limited to all business reasons for termination or layoff, and the next paragraph should discuss that the employee understands that even if they believe the termination is unlawful, this would include all comments about their alleged protected activity (i.e., filing a complaint). Further, it is important to cautioned the individual that their release of claims includes the list of all U.S. Federal and State protected classes to avoid any future issues. A good way to demonstrate how to draft these agreements is to look at the formal U.S . OSHA compliant non-disparagement clauses your employer signed as terms and conditions of employment. A best practice is to not integrate the nondisclosure agreement with the non-disparagement agreement. Management and HR should not complain when former employees discloses their discontent with the business as there are ongoing legal requirements and the departing employee intends to complain and/or discourage other people from working at the employer. A best practice is to define "release of claims" and describe its nuances more thoroughly in another document again using plain English and simple bullets to provide guidance to what it entails.
State that the parties understand the value of the consideration for this non-disparagement agreement has value. The employer should consider including a bonus or severance payment, or one month of the employee’s salaries/wages for signing the document as part of consideration. However, if the terminated employee is on leave pursuant to the FMLA or CFRA protected activity, you must make sure that this non-disparagement agreement is at least two weeks or more after the time of separation.
Typical Mistakes and Prevention Strategies
Even with a basic understanding of non-disparagement agreements and the provision’s effect, problems can still occur. And these don’t just occur in the midst of negotiations or in drafting an agreement; even if everything is done perfectly, there’s still a chance that something can go wrong later on.
Here are some common problems associated with non-disparagement provisions and how to avoid them:
• Problem 1: A broad definition of "disparagement"
Although California courts are beginning to apply a reasonableness standard to what constitutes a disparaging statement, it is still best to define exactly what is covered by a non-disparagement provision. Many employers still use a broad statement like, "The Employee agrees not to make any false, disparaging statements or representations regarding the services or products of the Company or any of its affiliates, employees, and officers." Without being narrowly tailored, such a broad statement may be violated by an employee truthfully stating negative information that does not meet such a broad statement’s definition of "disparagement."
• Problem 2: Including a non-disparagement provision in an older employment contract
Due to changes in the law, employers should not use boilerplate language from older contracts or employment agreements to include a non-disparagement provision. Employers need to be careful about reusing language from past documents, as that language may not comport with current law. For example, a non-disparagement clause that limits what "a prudent and reasonable person would be likely to understand …" as disparaging is no longer accurate, as courts in California now apply a reasonableness test to determine whether a statement is disparaging. If you are using older employment documentation that has a non-defamatory provision that limits what can be said under the standard of what "a prudent and reasonable person would be likely to understand", you will probably need to update that language.
• Problem 3: A violation after termination
An employer may be stuck with a non-disparagement agreement that is overly broad, and which the employee violates after termination regarding coworkers or customers. If you locate a relevant statement, you must be able to prove that a violation occurred. You may also potentially need to prove that the violation resulted in a loss. You should be able to show that the employee’s action affected third parties, either your business partner or a customer. If the employee’s statements do not result in harm to a third party or a loss to your business, then the agreement may not be enforceable due to lack of consideration. It is possible to mitigate disputes over a non-disparagement agreement in an employment contract by requesting that the employee agree to resolve such issues through arbitration.
Practical Examples and Illustrative Cases
In the hospitality industry, hotels and motels often require their staff to sign non-disparagement agreements. For instance, a five-star luxury hotel chain was facing negative online reviews that were harming their reputation and credibility. In an attempt to mitigate future negative reviews and keep the staff from disparaging the business, the hotel required all employees from housekeeping to front desk staff to sign a non-disparagement agreement. The agreement stated that if employees spoke negatively about the hotel on any social media platform or to any of the hotel’s guests, they would be terminated. Although the employees complied with signing the agreement, they later decided to unionize and sought to have the agreement declared unenforceable. The case was brought before the National Labor Relations Board for review.
In professional sports, athletes are also very much impacted by non-disparagement contracts. For example, in February of 2018, NBA commissioner Adam Silver issued a ban against former LA Clippers’ team owner Donald Sterling. The ban effectively forced the sale of the team to former Microsoft CEO Steve Ballmer after audio recording was leaked of Sterling arguing that Black people should not be allowed to attend NBA games. The ban prevented Sterling from having any management role within the franchise and since took away ownership of the team. The matter was settled behind closed doors instead with the NBA agreeing to pay Sterling $2 billion in exchange for his non-disparagement and non-disclosure of the matter.
Further, in the world of entertainment and television, actors frequently find themselves bound by non-disparagement, non-disclosure, and confidentiality agreements as part of employment contracts. For example, in 2014, actress Ellen Pompeo sought to renegotiate her contract with Grey’s Anatomy television show producers and executives. Surrounded by a number of other non-disparagement contracts, the statements made supporting the worth of her show along with the negotiation process was effectively silenced. As written out in her contract, "unless required, Ellen shall not hereafter make, publish or communicate disparaging remarks …. about the subject series" which included further efforts to keep third parties including "media, bloggers and/or other people or entities" from openly discussing the matter. Ultimately her non-disparagement agreement provided for financial compensation to her, upwards of $350,000.00 if observers were found spreading disparaging information about her privately.
Or consider the case of Boeing and the United States government on a joint contract to create and develop aircraft systems for the US government. In the contract, a non-disparagement agreement between Boeing and 40 prior (and possibly current) Boeing employees working on the government contract ultimately cost the parties a minimum of $245 million in litigation costs alone. In the contract, Boeing prohibited its employees from speaking negatively on their social media accounts regarding the project or disclosing information obtained during the project. However, Boeing and the US Air Force could not agree on a resolution to the problems and ultimately proceeded to litigation to settle the matter, which required an almost complete retraction of the contract between Boeing and the government.
Thus, real-world examples, mold the way that employers, companies and government organizations with large teams, view non-disparagement agreements: as a way to protect themselves from negative publicity and possible financial fallout from their employees.
Negotiating Non-Disparagement Terms
Negotiating non-disparagement terms, whether as part of an exit package or a separate agreement, can sometimes be tricky. For starters, it is important to remember that a non-disparagement term does not mean that you can’t sue. It does not mean that you have to go easy on your employer when you are running for public office or discussing issues of public concern in the media. A non-disparagement term does suggest that such discussions have a added element of risk. But with that said, it is often not easy to go through a process with an employer and negotiate non-disparagement terms. When negotiating such terms, some things to consider may include: Beyond the types of considerations above , individuals should also bear in mind things like how long the non-disparagement will stay in effect after the date of the agreement (if at all) and what counts as "disparagement" (if it is not defined). With those things in mind, both employees and employers are often best served when non-disparagement terms are as specific as possible. Above all, when an employee is negotiating a non-disparagement term with an employer, one key thing to do is remember that it is (as noted above) primarily an element of risk. In doing so, an employee is often best served by keeping in mind that a non-disparagement term that is specific is likely to effectuate more closely the parties’ intentions.