Passage of “Silenced No More Act” Poised to Usher in New Era of Transparency, Where California Whistleblowers Will No Longer be Gagged by Overly Broad Non-Disclosure Agreements and Non-Disparagement Clauses and Can More Freely Report Corporate Fraud
On Monday, August 30th, the California Legislature took a giant leap forward in promoting transparency, corporate accountability, and integrity by passing Senate Bill 331, the “Silenced No More Act,” which is soon to be one of the country’s most advanced laws redressing the insidious role NDAs and other concealment and non-disparagement clauses have played in preventing whistleblowers from speaking up about wrongdoing. The Act, which is expected to be signed into law by Governor Newsom imminently, is a notable advance in the rights of California whistleblowers to speak out more safely about wrongdoing. Unburdened by the fear of legal retribution and costly litigation for violating the terms of overly broad and onerous NDAs and clauses in severance agreements requiring people not to disparage their former employers, California whistleblowers soon will be restored to their rightful place as citizen watchdogs free to expose wrongdoing and thereby protect the public.
The 2021 Silenced No More Act picks up where California’s 2018 Stand Together Against Nondisclosure Act (“STAND”) left off. Whereas STAND outlawed settlement agreements that prevent the disclosure of sexual assault, sexual harassment, workplace harassment, discrimination on the basis of sex, and failure to prevent such an act or retaliation against a person for reporting such an act, the Silenced No More Act expands this prohibition to include provisions in agreements entered into on or after January 1, 2022 that restrict the disclosure of information about other types of discrimination and harassment, including that related to race, disability, and age. The law was co-sponsored and championed by whistleblower Ifeoma Ozoma, who accused Pinterest of racial as well as gender discrimination and faced the prospect of significant financial penalties for violating the terms of Pinterest’s NDA when she chose to speak out publicly about racial discrimination at Pinterest.
Perhaps most significantly for our unique breed of whistleblower clients at Constantine Cannon who seek to report ways in which their employers have fleeced or otherwise cheated the government, the Silenced No More Act also includes a heretofore little reported but broad catch-all provision that prohibits agreements that restrict the disclosure of information about “unlawful acts in the workplace.” California Government Code 12964.5.(a)(1)(B)(i). Together the #MeToo movement and Ifeoma Ozoma’s historic case have moved mountains in raising public awareness and consciousness about how Non-Disclosure Agreements and Non-Disparagement Clauses have silenced those who have experienced sexual assault, sexual harassment, workplace harassment and discrimination on the basis of sex and race in the workplace. However, as our experience representing such whistleblowers has shown, employees who seek to expose frauds by their employer also have been gagged by NDAs and non-disparagement clauses and otherwise stymied from bringing such information forward. Take our whistleblower client Tyler Shultz. He disclosed to Wall Street Journal reporter John Carreyrou information that Silicon Valley blood-testing company Theranos was a fraud. Theranos then sued Shultz for violation of a Non-Disclosure Agreement and covenants that prohibited disclosure of trade secrets, a lawsuit that caused Shultz to incur over $400,000 in attorney’s fees to defend and required his parents to mortgage their home to finance. When asked about his decision to speak up, Tyler Shultz famously said “Fraud is not a trade secret. I refuse to allow bullying, intimidation and threat of legal action to take away my First Amendment right to speak out against wrongdoing.”
The good news is that the 2021 Silenced No More Act (SNMA), which will take effect in 2022 once signed into law by Governor Newsom, will go a long way toward emboldening future California whistleblowers like Tyler Shultz and his co-whistleblower Erika Cheung to speak out against their employers when they are engaged in fraud and lessening the repercussions. NDAs and non-disparagement clauses broadly seeking to restrict such behavior, i.e., disclosing information about their employer’s “unlawful acts in the workplace,” will soon be illegal and unenforceable. In Silicon Valley, in particular, where tech companies throw around NDAs like confetti, the sunlight that the SNMA will afford is sure to be the best disinfectant.
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