Gag Clause

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What is a gag clause?

A gag clause, also known as a non-disparagement clause, is a provision in a contract or agreement that prohibits one or more parties from making any negative or critical statements about the other party or the terms of the agreement. This type of clause is often included in non-disclosure agreements (NDAs) or other types of contracts to protect trade secrets, sensitive information, or the reputation of a company or individual.

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Image showing the meaning of a gag clause

Gag clauses are typically used to prevent employees, contractors, or other parties from discussing their experiences or sharing information about the company or individual with others. These clauses can also be used to prevent customers or clients from making negative comments about a company’s products or services. The parties that are restricted by the gag clause are not allowed to make any type of public or private statements that could harm the reputation or interests of the other party. HBR’s organizational management research documents that overly broad gag clauses in employment agreements have faced increasing legal scrutiny and employee backlash, particularly in post-#MeToo enforcement and settlement contexts.

However, gag clauses can have a chilling effect on free speech and can be used to silence whistleblowers or conceal misconduct. They can also be used to protect powerful individuals or organizations from public scrutiny. Some states and countries have laws that prohibit the use of gag clauses in certain contexts, such as employment contracts or consumer agreements, to protect the rights of individuals and the public’s right to know.

Why are gag clauses used?

Gag clauses are typically used to prevent employees, contractors, or other parties from discussing their experiences or sharing information about the company or individual with others. This can include information related to trade secrets, business practices, financial information, or other sensitive information that the company or individual wishes to keep confidential. The use of gag clauses can be beneficial for companies or individuals who wish to maintain a certain level of control over the information that is shared about them or their business.

Additionally, gag clauses can also be used to prevent customers or clients from making negative comments about a company’s products or services. This can be seen as a way to protect the company’s image and reputation, and to prevent negative publicity that could harm the company’s reputation or financial performance.

Gag clauses can also be used to protect the reputation of an individual, particularly in cases where the individual is a public figure or a high-profile business executive. These clauses can be used to prevent individuals from making negative statements about the company or individual that could harm their reputation or cause them to lose credibility.

Overall, gag clauses are used to protect sensitive information, trade secrets, and reputations of companies or individuals, by restricting the free speech of the parties involved in the agreement.

What are the potential negative effects of gag clauses?

The potential negative effects of gag clauses can include:

  1. Chilling effect on free speech: Gag clauses can restrict an employee’s ability to speak out about their experiences or share information about the company, which can have a chilling effect on free speech and the ability of employees to speak out about important issues.
  2. Concealment of misconduct: Gag clauses can be used to silence whistleblowers or conceal misconduct within the company, which can have serious negative consequences for employees and the public.
  3. Damage to employee morale: Gag clauses can create a culture of fear and mistrust within the company, which can negatively impact employee morale and motivation.
  4. Loss of credibility: Gag clauses can be used to prevent employees from discussing their experiences in a negative way, which can cause them to lose credibility with friends, family, and other contacts.
  5. Legal challenges: Gag clauses can be challenged in court and if found to be illegal, can lead to financial penalties for the company and reputational damage.
  6. Limits on legal rights: Gag clauses can limit an employee’s ability to pursue legal action against the company if they feel they have been wronged, which can be detrimental to the employee’s rights.

Overall, gag clauses in HR can have negative consequences for both employees and the company and should be used with caution. SHRM’s employment law guidance recommends employment counsel review of all non-disparagement provisions to ensure compliance with the NLRA and applicable state laws that may restrict their scope.

Transparent hiring practices reduce reliance on restrictive post-employment clauses. Organizations using pre-employment assessments ensure every hire is grounded in verified skills. A data-driven hiring plan reduces mis-hire risk, while strong talent acquisition practices focused on skills-based hiring help organizations attract and retain top talent.

Frequently asked questions

A gag clause (or non-disparagement clause) is a contractual provision prohibiting one or both parties from making negative, critical, or damaging statements about the other. In employment, they typically prohibit employees from criticizing their employer publicly after separation. They are often included in settlement agreements, severance packages, and executive employment contracts.

A non-disclosure agreement (NDA) prohibits disclosure of specific confidential information (trade secrets, client lists, proprietary data). A gag clause or non-disparagement clause goes further : it prohibits making negative statements about the company, even using public information. NDAs protect information; gag clauses protect reputation. Both are commonly combined in settlement agreements.

In most jurisdictions, non-disparagement clauses are generally enforceable if they are mutual, reasonably scoped, and involve adequate consideration. However, important limitations apply: the NLRA protects employees’ rights to discuss working conditions collectively, making overly broad clauses unenforceable; some states (like California) heavily restrict post-employment speech restrictions; and the SPEAK OUT Act (2022) limits NDAs in sexual harassment settlements.

Common contexts include: settlement agreements for harassment or discrimination claims, executive severance packages, intellectual property protection agreements, whistleblower settlements, post-termination separation agreements, and high-profile departures where negative publicity is a concern. They are most effective and legally defensible in true settlement contexts with mutual obligations and clear consideration.

Key limitations: NLRA Section 7 protects employees’ right to discuss wages, working conditions, and concerted activities : gag clauses cannot override this. EEOC charges and testimony cannot be prohibited. State laws may void clauses that restrict safety complaints or illegal activity reporting. The SPEAK OUT Act prohibits NDAs silencing victims of sexual harassment. Courts have voided overbroad clauses that effectively prohibit all speech about employment.

Best practices: work with employment counsel to draft narrowly tailored provisions, include mutual non-disparagement (both parties restricted) rather than one-sided clauses, avoid clauses that could violate NLRA rights, clearly explain the clause to departing employees and provide adequate review time, and ensure appropriate consideration (real value) is provided. Overly aggressive gag clauses can be counterproductive : creating litigation risk or public perception problems if the employee resists.