Workplace Transparency Act Limits Confidentiality and Arbitration Provisions

This is our first in a series of alerts detailing key provisions of SB75, the anti-harassment legislation awaiting approval by Governor Pritzker. In this alert, we focus on Article I of SB75, which creates a new law entitled the Workplace Transparency Act. The Act imposes new limitations on contracts with prospective, current, and former employees, as detailed below.

Limits on Contracts Imposed as a Condition of Employment

Section 1-25 of the Act creates new limitations on contracts that are imposed by an employer as a “unilateral condition of employment or continued employment.” This category would include, for example, a form of a confidentiality agreement that an employer presents to all employees and requires them to sign before beginning employment.

Under the Act, a clause or provision in a unilateral agreement with an employee will be considered void if it:

• “[H]as the purpose or effect of preventing an employee or prospective employee from making truthful statements or disclosures about alleged unlawful employment practices”; or
• “[R]equires the employee or prospective employee to waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit related to an unlawful employment practice to which the employee would otherwise be entitled under any provision of state or federal law.”

The Act defines “unlawful employment practices” to include any form of unlawful employment discrimination, harassment, or retaliation under the Illinois Human Rights Act or “any related State or federal rule or law” enforced by the Illinois Department of Human Rights or the U.S. Equal Employment Opportunity Commission. 

A provision that would otherwise be considered void in a unilateral agreement under the Act may be permitted if the agreement:

1. Is in writing;
2. Demonstrates actual, knowing, and bargained-for consideration from both parties; and
3. Acknowledges the right of the employee or prospective employee to:
   1. Report good faith allegations of unlawful employment practices to an appropriate federal, state, or local government agency;
   2. Report good faith allegations of criminal conduct to an appropriate federal, state, or local government official;
   3. Participate in a proceeding with any appropriate federal, state, or local government agency;
   4. Make truthful statements or disclosures required by law, regulation, or legal process; and
   5. Request or receive confidential legal advice.

Restrictions on Settlement and Termination Agreements

The Act also imposes new limitations upon the use of confidentiality provisions in settlement and termination agreements. Section 1-30 of the Act provides that such agreements may include “promises of confidentiality related to alleged unlawful employment practices” if:

1. Confidentiality is the documented preference of the employee, prospective employee, or former employee and is mutually beneficial to both parties;
2. The employer notifies the employee, prospective employee, or former employee, in writing, of his or her right to have an attorney or representative of his or her choice review the settlement or termination agreement before it is executed;
3. There is valid, bargained-for consideration in exchange for confidentiality;
4. The settlement or termination agreement does not waive any claims of unlawful employment practices that accrue after the date of execution of the settlement or termination agreement;
5. The settlement or termination agreement is provided in writing and the employee is given at least 21 days to consider whether to sign it;
6. Unless waived by the employee, the employee is given at least 7 calendar days after signing the agreement to revoke it.

The Act provides that an employer may not “unilaterally” include a clause in a settlement or termination agreement that prohibits an individual from “making truthful statements or disclosures regarding unlawful employment practices.”

To comply with the Act, employers can easily add boilerplate recitals to their agreements addressing the requirements above, including stating that any covered confidentiality provision is the “documented preference” of the employee and mutually beneficial to both parties. However, it is not clear whether or to what extent courts will probe beyond such language in cases where employees later insist that confidentiality was the employer’s “preference” but not theirs.

Note that the Act does not restrict the use of confidentiality provisions that limit disclosure of the terms of a separation or settlement agreement but does not otherwise bar statements relating to “unlawful employment practices.”

Agreements Restricting Reporting and Testimony About Unlawful Conduct Are Void

Section 1-20 of the Act prohibits contractual provisions that “prohibit, prevent, or otherwise restrict an employee, prospective employee, or former employee from reporting any allegations of unlawful conduct to federal, state, or local officials for investigation, including but not limited to, alleged criminal conduct or unlawful employment practices.”

Various state and federal laws already prohibit employers from retaliating against employees who report unlawful conduct to governmental officials. Accordingly, while it may be relevant in certain cases, this provision will not substantially affect most employers.

Section 1-40 of the Act prohibits any provision restricting an employee, prospective employee, or former employee from testifying in any administrative, legislative, or judicial proceeding concerning alleged criminal conduct or unlawful employment practices on the part of the employer or its agents or employees, when requested or required to testify by court order, subpoena, or written request from the administrative agency or legislature. The Act specifically notes that this provision is not a change, but rather is “declarative of existing law.”

Exceptions

Section 1-45 of the Act provides that the Act does not restrict an employer’s right to require the following to maintain the confidentiality of allegations of unlawful employment practices made by others:

1. Employees who, as part of their assigned job duties, “receive complaints or investigate allegations relating to unlawful employment practices,” or “otherwise have access to confidential personnel information;”
2. Employees and third parties who are asked to participate in an investigation of unlawful employment practices, and to maintain reasonable confidentiality while the investigation is pending and thereafter;
3. Employees and third parties who receive attorney work product or attorney-client privileged information as part of any dispute, controversy, or legal claim involving an unlawful employment practice;
4. Any individual subject to a legal or evidentiary privilege by law; or
5. Any third party engaged or hired by an employer to investigate complaints of unlawful employment practice.

Notably, the Act does not apply to contracts subject to the Illinois Public Labor Relations Act or the National Labor Relations Act and provides that any conflicts between the Act and a collective bargaining agreement would be resolved in favor of the latter.

Remedies for Noncompliance

Provisions that violate the Act will be considered void under Illinois law. The Act expressly provides that confidentiality and arbitration provisions voided by the Act will be “severable,” meaning that the remainder of the agreement can be enforced if it is otherwise lawful. The Act does not create any independent claim for damages or penalties against an employer. However, the Act allows an employee who successfully challenges a provision of a contract under the Act to recover their reasonable attorneys’ fees and costs.

Key Points For Employers

• Once signed by Governor Pritzker, the Act will take effect on January 1, 2020. The Act will apply to contracts “entered into, modified, or extended” on or after that date.
• Employers should carefully review their form agreements as well as existing agreements that may be modified or extended after January 1, 2020, to confirm that they meet all requirements of the Act.
• Employers may wish to wait before implementing any changes to their practices relating to arbitration agreements, as the Act is likely to face legal challenges to the extent that it seeks to limit the use of arbitration.

Please stay tuned for further alerts providing additional details of SB75’s numerous changes to Illinois law.