Navigating NDAs and Non-Disparagement Agreements in Colorado: The Impact of the POWR Act
In the world of business, confidentiality, maintaining a positive public image, and ensuring workplace equity are paramount. To achieve these objectives, companies often turn to legal instruments such as Non-Disclosure Agreements (NDAs) and Non-Disparagement Agreements. In Colorado, the newly enacted POWR (Protecting Opportunities and Workers’ Rights) Act has introduced significant changes that directly impact the use and enforceability of NDAs and Non-Disparagement Agreements. We will explore the implications of this Act on companies and why they need to be evaluating their policies, separation agreements, and employment agreements.
The POWR Act went into effect on August 7, 2023, and is not retroactive. The Act radically changes employment law in many ways, but we will be focusing on NDAs and Non-Disparagement Agreements, and Record Keeping Requirements.
The POWR Act and Its Impact on NDAs
Non-Disclosure Agreements (NDAs) are contracts designed to safeguard sensitive information. In the corporate context, companies use NDAs to protect their trade secrets, proprietary data, customer lists, and other confidential information. However, the POWR Act in Colorado has introduced limitations on the use of NDAs, specifically in cases involving discrimination, harassment, or retaliation claims.
• Specifically, the Act says an NDA is void, unless it expressly states that it does not prevent the employee from disclosing the underlying facts of the alleged discrimination, including the existence and terms of a settlement agreement to the employee’s family or counselors, government agencies, or legal representatives.
• Also, an NDA must state that disclosure of the underlying facts does not constitute disparagement.
Employers Should Review Their Existing Non-Disparagement Agreements
Non-Disparagement Agreements are contracts that prohibit employees or other signatories from making negative or harmful statements about the company, its products, services, or employees. These agreements aim to protect a company’s reputation and foster a positive work environment. Companies must carefully review the scope and content of Non-Disparagement Agreements in light of the POWR Act. These agreements should not be overly broad or infringe upon employees’ rights to report discrimination, harassment, or retaliation.
Specifically, non-disparagement clauses must comply with the following requirements:
• If there is a non-disparagement clause and the employer disparages the employee, the employer cannot then enforce the non-disparagement clause against the employee; • Any liquidated damages provision cannot be used punitively and must be reasonable; and • The agreement includes an addendum certifying that it complies with these requirements.
If a nondisclosure or non-disparagement provision violates these requirements, the employer is liable for actual damages and a penalty of $5,000 per violation. Any employee who is presented with an illegal nondisclosure agreement can immediately bring an action against the employer.
New Recordkeeping Requirements for Employers Lastly, the POWR Act requires employers to keep accurate employment records about accommodation requests, reports of discrimination or harassment, application forms, employment decisions such as hiring, firing, promotion, demotion, compensation, and training. The employer must keep these records for at least five years.
Significantly, the POWR Act further specifies that employers must “maintain an accurate, designated repository of all written or oral complaints of discriminatory or unfair employment practices.” This repository must include the date of the complaint, the complaining party, if known, the alleged perpetrator, and the substance of the complaint. This is a major change to Colorado law and businesses need to make sure they are keeping records compliantly.
The POWR Act has brought significant changes to the use and enforceability of NDAs and Non-Disparagement Agreements in Colorado. To navigate these complex legal challenges successfully, it’s imperative for companies to consult with experienced legal professionals when drafting and enforcing these agreements. Remember it’s good to revisit your contracts on an annual basis to make sure you’re keeping up with evolving legislation. If you have questions or want to review your contracts with an attorney, please feel reach out to us here at Basecamplegal.com. Make sure your free 15-minute free legal consult today here