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The Smith Effect: More Non-Disclosure Deals

Company non-disclosure agreements were said to be on the rise even before Greg Smith’s flame-throwing departure from Goldman Sachs this week. Now, experts expect even more employees will be asked to sign.

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Smith left a farewell note for his bosses in the form of stinging op-ed in The New York Times entitled “Why I am Leaving Goldman Sachs,” which went viral. It was the second such incident in one week. On Thursday, actress Leah Remini tweeted that her former colleague Sharon Osbourne had her fired from the CBS chat show, The Talk; Osbourne denied the allegation – also via Twitter. While it’s tough to track employer use of non-disclosure agreements (as they are by nature confidential), lawyers say more firms are using them – and that this week’s incidents may accelerate the trend. “This case will certainly cause more employers to take out non-disclosure agreements,” says Michael Josephson, former law professor and founder of the non-profit Josephson Institute of Ethics in Los Angeles, Calif.

Non-disclosure or “non-disparaging” agreements originally began as a way for companies to protect trade secrets, Josephson says. In the financial services industry, they typically contain non-compete clauses to prevent employees jumping ship to work for the competition. But non-disparagement clauses, which bar employees from badmouthing their former companies are growing almost as common in the financial services industry as those used by celebrities to protect their privacy from loose-lipped nannies who talk to the tabloids, he says. “Nowadays people feel empowered to express their opinions online.” (Goldman Sachs did not respond to questions about whether Smith had a non-disclosure agreement.)

But so-called gag orders have ramifications for past and future employees, analysts say. When a member of staff trades silence for a sparkling reference or a higher severance package, they’re less likely to warn their replacement. These incentives to stay quiet are also on the rise. “I’ve seen $100,000 liquid damage agreements,” San Francisco-based employment lawyer Cliff Palefsky says. If an employee breaks them, he or she risks an expensive lawsuit or – perhaps worse – the company may retaliate in the media, Josephson says. However, public policy can override non-disclosure agreements which make unreasonable demands: U.S. Equal Employment Opportunity Commission rules stipulate that employees cannot be prevented from talking about unethical or illegal practices like discrimination. “Everyone should have unfettered freedom to complain to us,” says Justine Lisser, senior attorney and adviser at the office of communications and legislative affairs at the EEOC.

To be sure, experts say such these contracts are difficult to enforce, Josephson says. Once damaging information is tweeted from an anonymous Twitter account or quietly passed onto a news website, Josephson says it may be near impossible to prove its origins. But former employees should be careful what they tweet. As SmartMoney.com reported, a 140-character post written in haste can result in fines of hundreds of thousands of dollars. Daniel Post-Senning, great-great grandson of the grand dame of etiquette Emily Post, says the decision to follow Smith’s lead depends on what you have to say and the reasons for saying it. “Part of your professional image involves not airing your dirty laundry in public,” he says, “but honesty underlines all good ethics.”


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