August 14th, 2021

Shifting States

NON DISCLOSURE AGREEMENTS

75 percent of US firms currently make use of non-disclosure agreements. Originally developed to protect trade secrets, today's agreements have expanded to include information on salaries, skills, client lists, and employment practices.

In a 2019 research paper, legal scholar ORLY LOBEL considers the impact of restrictive clauses on worker mobility, diversity, and inequality.

From the paper:

"In his seminal work Exit, Voice, and Loyalty, political economist Albert Hirschman proposed an interplay between the three concepts. When an organization breaks down, individuals can effect change by either leaving or by working from within to right the wrongs. Loyalty, Hirschman argued, moderates the choice between exit and voice. In corporate settings, employees regularly experience discontent and must decide what form of action to take. But what happens when both exit and voice are restricted?

In today's labor markets, non-disclosure agreements (NDAs), non-compete agreements, innovation assignment clauses, non-disparagement agreements, mandatory arbitration, and secrecy policies all create exit and voice constraints. Recently, a steep rise in these clauses has shaped human capital in ways that are harmful to all workers as well as to industries at large. Regardless of enforceability, NDAs are routinely expansive and used to signal to employees that a range of knowledge, information, and speech is off-limits. In particular, salary as proprietary information shows the connections between market competition, secrecy, and inequality: if women and minorities are in the dark about their undervalued talent, they are less likely to seek exit or to speak up to be equally compensated for their performance. Another such example is information pertaining to diversity. In recent years, major companies have claimed that their diversity information is a trade secret—in 2018 Microsoft filed a lawsuit against its Chief Diversity Officer, claiming that the employee had knowledge on how to achieve more inclusion. In another case, IBM alleged that the executive held trade secrets which include diversity data and strategies. When corporate contracts, practices, and culture limit employees’ ability to advocate organizational change, the many shades of inequality and status quo are sustained."

Link to the piece.

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