When companies lay off employees and offer them severance packages, it’s not uncommon to have them sign a non-disclosure agreement, which effectively prevents them from saying anything disparaging about the company after they leave. If the employees don’t agree, they don’t get the money.

Similar tactics are often used in racial discrimination settlements. But that’s changing. Let’s take a look at how and why, and at what employers need to know.

For one thing, according to the Wall Street Journal, the attitude shift brought about by the #MeToo movement (and the movement against racial injustice) has led employees to “demand exit agreements [that] permit them to speak out about their alleged discrimination.” The WSJ provides an example: “[Alex Gumbs] left Medtronic PLC earlier this year after making several internal complaints that the company’s promotion process was discriminatory against Black employees. Following the police killing of George Floyd, he said, he felt he had a responsibility to go public about his experience, even though he was in settlement negotiations with Medtronic.”

Gumbs and other employees are still having to ask themselves difficult questions: “Would it ruin my career to speak out? … Should I stand up to stop others from being harmed? Will anything change if I do?”

Gumbs isn’t alone in trying to change the power balance: Last year, Laurie Evans, “a former Bloomberg LP employee [asked] a judge to invalidate any non-disclosure agreements that the company used in settling sex, age, and disability discrimination complaints brought by its employees.”

Also, a former Pinterest employee, Ifeoma Ozoma, said, “Companies are using NDAs as a way to force peoples’ silence.” Ozoma added that she experienced racism, discrimination and abuse at Pinterest. “If we want the system to fundamentally change, people have to be able to talk about what happened to them.”

The challenge for employers is clear. Law firms and attorneys are resistant to eliminating such NDAs because this would introduce more liability for the companies they represent, and that’s why these NDAs are in place today for these types of settlements (see the statement from Condé Nast below). Disclosures of the type that Alex Gumbs is seeking likely increase the risk of class-action lawsuits. However, there’s increasing pressure on employers to disclose systemic discrimination issues within their organizations. 

Some of that pressure is coming from lawmakers. For example, New Jersey already has legislation “that bans nondisclosure agreements in cases alleging discrimination, retaliation, or harassment … what the law does is say that those provisions are unenforceable. The law also renders void any employment contract that waives substantive or procedural rights or remedies relating to discrimination, retaliation, or harassment.”

California is following suit: “The Silenced No More Act (SNM Act) is intended to prevent the enforcement of non-disclosure provisions in a wide variety of employment settlement agreements. … Under the SNM Act, targets of discrimination based on race, national origin, religion, or gender identity will also now be free to ignore the contractual gag orders companies negotiate into their settlement agreements.”

Other pressure on companies is coming from the public. Using NDAs to silence former employees would appear to be in opposition to employers’ pledges to support social justice, and now, some employers who need public opinion in their court are taking different approaches: “PepsiCo Inc. in 2019 changed its separation agreements to inform employees they could speak openly about any allegations of harassment and discrimination. This year, Condé Nast (magazine publishing) stopped using NDAs in settling allegations of sexual harassment, discrimination, and retaliation and released former employees from existing NDAs for these issues.”

Indeed, Condé Nast stated: “There are legitimate arguments in favor of NDAs in certain circumstances, which is why their use remains widespread; confidential settlements can spare both employees and employers the cost of litigation, and maintain privacy for all involved. … However, given our company’s values and commitment to transparency, we have decided that going forward, we will no longer enter into NDAs that prevent an employee from making a disclosure of conduct they were subjected to that they believe, in good faith, constitutes harassment, discrimination, or retaliation.”

The best outcome for employers and employees alike is that discrimination against protected classes of employees goes away entirely. But if discrimination at a particular company is only challenged by one employee of a protected class such as race and that one employee can’t talk about it with another employee of the same protected class or anybody else for that matter, the risk is that the systemic issues continue at the company, to the detriment of all involved.

In any case, companies that take non-discrimination seriously, and have the metrics to prove it, will benefit from doing so. One such metric is pay equity, which is strongly interconnected with issues surrounding discrimination. Companies would do well to consult with an expert firm to monitor pay equity on a monthly basis.

Organizations looking to disclose pay equity, diversity, and inclusion data information should do so within an ESG reporting framework. Download our white paper, DEI in ESG Reporting to learn about the different standards you can leverage for sharing your progress.