Is forced arbitration combined with nondisclosure agreement enforceable?

Question

Consider a company which combines a non-disclosure agreement with an arbitration agreement in an attempt to prevent employees from sharing sexual harassment anywhere (online, media, etc), even if the employee proved it in arbitration and won the arbitration. Is this kind of arbitration enforceable? It would prevent employees from exposing the company to the public.

Another example would be a scam website combining a non-disclosure agreement with an arbitration agreement to prevent people from legally sharing anywhere that the website is a scam (even worse, they could profit off people who did so by claiming "damages" in arbitration/court).

Answer 1

Generally speaking, a contract in the united-states requiring both arbitration and nondisclosure is neither unusual nor legally controversial.

But the answer may be different under certain circumstances, and almost certainly in your first example.

In that case, the arbitration provision would likely be enforceable, though the NDA probably would not, as the Speak Out Act, 42 U.S. Code § 19403, makes NDAs unenforceable when they purport to govern sexual-harrassment disputes that had not yet arisen when the agreement was signed.

Answer 2

canada

Mandatory arbitration (or any term, for that matter) is reviewable for unconscionability. Ordinary contract principles apply. If they appear in consumer contracts of adhesion, they may draw special scrutiny for unfair terms.

For example, in Douez v. Facebook, Inc., 2017 SCC 33, the Supreme Court of Canada found that a forum-selection clause in Facebook's terms of use was unenforceable.

In Uber Technologies Inc. v. Heller, 2020 SCC 16, the Court found that a mandatory arbitration clause was unenforceable.

Answer 3

australia

The legality of the arbitration and the non-disclosure clauses are independent of each other

As a general rule, arbitration is both legal and encouraged as a way of reducing the burden on the courts. They are rarely set aside and the avenues for challenging an arbitration decision are narrow. One exception in Australian law is that an arbitration clause does not prevent participation in a class action.

NDAs are also legal and enforceable. However, they cannot be used to protect illegal behavior or the reporting of a crime.

In the cases you describe, we have instances of illegal behavior and criminality.

In the first case, we have an ostensibly valid arbitration agreement and NDA. In the second, it is likely the entire contract is void an initio because it was entered for an illegal purpose (scam); that makes the analysis trivial- go straight to court and say what you want to whoever you want.

Going back to the sexual harassment case, it is likely that a properly drafted arbitration clause would be upheld and any claim for damages would need to be arbitrated rather than litigated. Arbitration is only confidential on the parties (as opposed to the arbitrator) if they so agree - in the arbitration agreement or otherwise. Note that any criminal prosecution is undertaken be the Crown in parallel to any civil restitution.

The NDA would not prevent reporting the matter to the relevant authorities for investigation. However, they would generally prevent disclosure to any other third-party.

However, NDAs in relation to sexual harassment/assault have recently come under both judicial and legislative scrutiny. The position is in flux but it is likely that a pre-existing NDA will not be enforced to prevent disclosure of such matters and post gov NDAs should only be established on a case-by-case basis and only be enforced if they are in the best interest of the victim and not for the sole benefit of the perpetrator.

Answer 4

Forced arbitration with a nondisclosure agreement can be enforceable, but courts may invalidate it if deemed unconscionable, overly broad, or against public policy.