New Colorado Law Prohibits Non-Disparagement and Non-Disclosure Agreements which Prohibit Disclosure of Unfair Employment Practices
July 26, 2023
By: Colin A. Walker
On August 7, 2023, the “POWR” Act will go into effect. As discussed in a previous blog post, this new law will change the law of workplace discrimination and harassment in many ways. In some cases, the implications will not be clear until Colorado courts issue opinions construing POWR’s provisions. However, it is clear that it will be very difficult to have a non-disparagement, non-disclosure, or confidentiality agreement in separation agreements and employment settlement agreements in Colorado.
The new law bans agreements which prohibit an employee or prospective employee from disclosing discriminatory or unfair employment practices, with some a very limited exception. A non-disclosure provision is not prohibited if:
- The provision applies equally to all parties to the agreement;
- The provision states that it does not prohibit disclosure of the underlying facts of any alleged discriminatory or unfair employment practice to immediate family members, government agencies, in response to subpoenas or other legal process, and for any other purpose required by law;
- The provision states that if the employer disparages the employee, the employer may not seek to enforce the provision against the employee (but all other terms of the agreement remain enforceable);
- Any liquidated damages provision must not be punitive, must be reasonable under the circumstances, and must be “varied based on the nature or severity of the breach”;
- The agreement contains an addendum, signed by all the parties, attesting to compliance with the above.
This exception is very limited indeed, and is likely to be unpalatable to most employers under most circumstances.
It should be noted that this prohibition is not limited to separation agreements and settlement agreements. It applies to any agreement which prohibits an employee or prospective employee from disclosing discriminatory or unfair employment practices. For example, in recent years, some employers have been including broad non-disparagement clauses in employment agreements. If these clauses are sufficiently broad to prohibit the employee from disclosing unfair employment practices—and they usually are—they would be prohibited unless they qualified for the limited exception (which is unlikely). Readers may recall that our March 16, 2022 blog post argued that non-disparagement clauses are not appropriate in employment agreements for other reasons.
However, this section would not apply to more typical confidentiality clauses commonly found in employment agreements, which are designed to prohibit disclosure and misappropriation of trade secrets. Because such provisions do not prohibit disclosure of unfair employment practices, POWR does not apply to them.
There are stiff penalties for violating this prohibition. Even presenting an employee with an agreement that violates this section gives rise to a civil action by the employee, or the Colorado Department of Labor and Employment, for actual damages, penalties of $5,000 per violation, costs, and attorneys’ fees. In addition, in any civil action for discrimination or unfair employment practices, the employee may introduce evidence that the employer entered into non-disclosure agreements that involved the discriminatory conduct of the same individuals, and such evidence shall be considered in support of an award of punitive damages. However, if an employer shows that the violation was committed in good faith and that it had reasonable grounds to believe that it was not violating this prohibition, a court can reduce or decline to award the penalty.
POWR is not the first effort to curtail the enforceability of non-disparagement and confidentiality agreements, which limit an employee’s ability to discuss unfair employment practices. As discussed in an earlier blog post, a recent decision by the National Labor Relations Board held non-disparagement and confidentiality clauses in separation agreements presented to union workers being terminated in connection with a reduction in force to be illegal under the National Labor Relations Act. Although the applicability of this decision in other contexts is not clear, many employment lawyers believe it invalidates such clauses in most, if not all, separation agreements.
After August 7, 2023, it seems that it is going to be very difficult to have a settlement agreement or separation agreement in Colorado with non-disclosure or non-disparagement provisions.