Non-Disclosure Provisions in Employment Agreements: New Requirements and Pitfalls for Colorado Employers Under the POWR Act
A.J. Peters, Of Counsel
Recent articles in The Rocky Mountain Employer highlight features of the Protecting Opportunities and Workers’ Rights (POWR) Act (SB 23-172), signed into law on June 6, 2023,[1] particularly with respect to changes to the definition of unlawful “harassment” and an employer’s ability to defend against claims of harassment and discrimination.[2] However, employers should also be aware that, as of the new law’s effective date on August 7, 2023, the POWR Act also imposes strict, new requirements for valid nondisclosure provisions in any employment agreement.
Non-Disclosure Provisions in Employment Agreements Void, Unless Compliant with the POWR Act
Under the POWR Act, provisions of employment agreements entered into or renewed on or after August 7, 2023 that would limit the ability of an employee or prospective employee to discuss or disclose alleged discriminatory or unfair employment practices (referred to as “nondisclosure provisions”) are rendered void and unenforceable unless the following six requirements are met:
1. The nondisclosure provision must apply equally to all parties to the agreement.
2. The provision must expressly state it does not restrain the employee or prospective employee from disclosing the underlying facts of the alleged discriminatory or unfair employment practice (including the existence and terms of a settlement agreement):
A. To the individual’s immediate family members, medical or mental health providers, mental or behavioral health therapeutic support group, legal counsel, financial advisors, religious advisors, or tax preparers;
B. To a local, state, or federal government agency for any reason, “without first notifying the employer;”
C. In response to legal process, “without first notifying the employer;” and
D. For all other purposes as required by law.
3. The nondisclosure provision must expressly state that a lawful disclosure does not constitute disparagement.
4. If the nondisclosure provision is contained in an agreement and the employer disparages the employee or prospective employee, the employer may not seek to enforce the nondisclosure provision or seek damages against the employee or prospective employee.
5. Any liquidated damages provision within the agreement must provide for an amount that is reasonable, proportionate, and not punitive.
6. An addendum must be signed by all parties to the agreement, attesting to compliance with the above requirements.
Importantly, merely presenting an employment agreement containing a non-compliant nondisclosure provision to an employee or prospective employee constitutes an immediate violation of the Act, even if the employer has not actually attempted to enforce its terms.
Employer Considerations
Employers will need to carefully follow these requirements when crafting employment agreements because, in the event of a violation, the POWR Act provides for employer liability for actual damages, attorneys’ fees, costs, punitive damages in a civil action, as well as a potential penalty of $5,000 per violation.
Notably, the new provisions of the POWR Act expressly pertain to employment agreements. By contrast, employee handbooks typically disclaim the formation of any agreement between the employer and employee other than at-will employment. Nonetheless, employee handbooks often contain policies, such as confidentiality rules, that may have been written broadly enough to implicate concerns the POWR Act’s new provisions aim to address — namely, the ability of employees to lawfully disclose alleged discriminatory or unfair employment practices. For this reason, employers may want to review their policies, enforcement practices, and the terms of employee handbooks to avoid an inadvertent violation of the POWR Act’s new restrictions on nondisclosure provisions.
As always, Campbell Litigation remains available to assist employers with any questions about employment agreements and workplace policies in light of the passage of the POWR Act.
[1] The full text of the POWR Act can be found here: https://leg.colorado.gov/sites/default/files/2023a_172_signed.pdf.
[2] See https://www.rockymountainemployersblog.com/blog/2023/6/29/governor-polis-signs-multiple-laws-further-changing-the-colorado-employment-law-landscape; https://www.rockymountainemployersblog.com/blog/2023/4/13/colorado-seeks-to-redefine-harassment-in-employment-discrimination-cases.