#ElonGate Exposes the Need for Reform of Nondisclosure Agreements and Enforcement
Efforts to outlaw NDAs in employment related sexual harassment cases hurt the victims most of all. Confidential settlements are good for all parties (except trial lawyers).
This week corporate media published statements made by a woman who claims a licensed massage therapist that previously worked for Space X told her that during a massage aboard Elon Musk’s G650 the billionaire became erect, exposed his penis, and offered to buy the masseuse a horse if she would help him climax.1 The unnamed woman claims that after the therapist complained to HR and attended a mediation session she agreed to resign and not repeat her claims in exchange for a positive reference and a $250,000 severance payment (5X her annual salary). To his credit, Elon Musk denies the events described ever happened and has challenged the anonymous woman and/or massage therapist to prove their claims.
But for the sake of argument let’s assume that the anonymous woman’s claim that Space X paid the massage therapist $250,000 in exchange for an agreement not to disclose her claims to anyone is true.
In that case, the company’s lawyers would have considered a number of factors before agreeing to pay out $250,000 including:
The cost of litigation to the company - an average of $72,000 in legal fees2
The cost of judgment in the event of a loss - average award $217,0003
The cost of settlement - average $53,000 payment to claimant4
If the company believed it could rely on the massage therapist to honor the terms of a nondisclosure agreement a $250,000 settlement makes sense for BOTH parties. Some of the benefits to the massage therapists include:
Immediate payment - the average sexual harassment case in CA takes 6 years to get to trial.5
Higher payment - contingency lawyers typically receive 40% of the settlement after fees. If the average award is $217,000 with average fees of $72,000 - the average payment to the claimant would be $87,000.6
Employment - employees who are involved in litigation with their former employers are FREQUENTLY discriminated against7, meaning it could take longer to get a new job and might negatively impact compensation.
Distraction - litigation is very upsetting and disruptive. The lawyers will dig up every possible speck of dirt against the former employee, and depose their former employers, family, and friends.8
But if the company believed it could NOT rely on the massage therapist (or her associates) to honor the terms of a nondisclosure agreement going to trial is a MUCH better deal for the company.
Likelihood of dismissal - most sexual harassment claims are dismissed by judges with only 3-6% surviving and reaching trial (typically after six years).9
Likelihood of victory - companies with HR departments almost NEVER lose sexual harassment claims in court as they have policies and procedures that shield them from liability.10
Cost - in the very unlikely event that a case survives dismissal, the cost of the award plus legal fees is about the same as the costs of a settlement.
Reputation - claims of sexual harassment are damaging in the near term but that damage can be ameliorated through victory.
Fewer future cases - if claimants, especially those with dubious claims, know that instead of securing a quick settlement they will likely lose their job, find it challenging to secure new employment, and ultimately lose in court they may be less likely to make their claims in the first place.
The settlements that NDAs facilitate incentivize both parties to move on with their lives while providing the claimant with the highest possible financial award. Despite that fact, during the height of the #MeToo and #BelieveAllWomen movements, Democrats began encouraging claimants to violate their NDAs. For example, Harry Litman United States Attorney for the Western District of Pennsylvania literally encouraged Stormy Daniels to violate her NDA with then-President Trump explaining in a 2018 CNN article titled, Stormy, don’t worry about violating your NDA.11 The former deputy assistant general of the Department of Justice wasn’t wrong. Since then both California and Washington have passed laws outlawing confidentiality agreements related to accusations of workplace sexual harassment. California’s law allows NDAs as long as the parties have addressed the harassment claims in one of several defined forums and that the claimant was given time to hire an attorney.12 Washington’s law is more draconian basically retroactively outlawing NDAs related to sexual harassment.13
While I am certain Democrats who want to outlaw NDAs in employment-related sexual harassment claims have the best of intentions their efforts are misguided at best. By eliminating the PRIMARY benefits of settling, fewer employers will be willing to give up their right to exonerate their companies opting instead to defend themselves in court. This will necessarily mean that far fewer victims (legitimate or otherwise) will receive any compensation given the fact that very few cases survive dismissal prior to trial. Cases that do pass the various legal hurdles that normally take six years to get in front of a jury will be delayed even longer. The unintended consequence of prohibiting employees from entering into NDAs related to employment sexual harassment claims will be the diversion of money from victims to lawyers.
Instead of prohibiting employees from entering into NDAs we ought the strengthen them creating even greater incentives for employers to use them more frequently. Here are a few of my ideas (feel free to discuss because I’m just spitballing here):
Require employees to file confidential police reports detailing the incident(s). Sexual harassment is generally not a criminal matter but rather a civil matter. If the police determine a crime took place they can work with the victim to determine how to proceed. Agreements that are entered into without a police report would be unenforceable.
Ensure all parties are represented by lawyers or at the very least have waived their right to consult lawyers in writing prior to settlement negotiations. Once it is determined that the claim is civil and not criminal, employees and employers should be freely allowed to enter into confidentiality agreements.
Develop safe harbor guidelines for liquidated damages14 in the event of a breach. If the parties agree to liquidated damages within the guidelines they would be enforceable without litigation on their merits - if a breach is proven the damages would be statutory. Parties can still agree to terms outside of the guidelines but their enforceability would be handled by the courts as they are today. I haven’t really given it much thought, but guidelines could cap damages at 3X the settlement amount or 5X the employee’s annual salary (whichever is less) and be garnished from monthly wages at a rate not to exceed 20% of an employee's post-tax salary. Painful but reasonable should be the strategy.
Finally, require claimants to disclose the identity of all parties with knowledge of the incident prior to the execution of the confidentiality agreement allowing the company to draft the agreement in such a way to ensure it will be honored by all parties.
Love to hear your thoughts…
P.S. It is very common for men to get erections during therapeutic massages.15 In fact, therapists report that as many as 70% of their clients become erect at some point during a massage.16 If Elon became erect during a massage, as is being reported, the therapist’s training should have helped them deal with the issue. The fact that the therapist was very new may be the reason they felt uncomfortable enough to report the incident to HR. Again, Elon has denied the allegation made by someone who claims they know the massage therapist…
https://www.businessinsider.com/spacex-paid-250000-to-a-flight-attendant-who-accused-elon-musk-of-sexual-misconduct-2022-5
https://www.yourerc.com/blog/post/the-cost-of-sexual-harassment-in-the-workplace
https://www.kdh-law.com/blog/2021/03/what-is-the-average-settlement-for-sexual-harassment-in-the-workplace/
https://www.morellilaw.com/faqs/what-is-an-average-settlement-for-a-harassment-lawsuit/#:~:text=What%20Exactly%20Is%20the%20Average,how%20extensive%20your%20damages%20are.
https://www.manlystewart.com/how-long-does-a-sexual-harassment-case-take/#:~:text=In%20general%2C%20a%20federal%20court,within%201.5%20to%203%20years.
https://www.americanbar.org/groups/legal_services/milvets/aba_home_front/information_center/working_with_lawyer/fees_and_expenses/#:~:text=In%20a%20contingent%20fee%20arrangement,the%20money%20awarded%20to%20you.
https://www.employmentlawfirms.com/resources/im-not-getting-hired-because-i-filed-a-lawsuit-against-m
https://www.jstor.org/stable/25739892
https://www.npr.org/2017/11/28/565743374/sexual-harassment-cases-often-rejected-by-courts
https://hbr.org/2018/08/how-hr-and-judges-made-it-almost-impossible-for-victims-of-sexual-harassment-to-win-in-court
https://www.cnn.com/2018/03/25/opinions/trump-unreasonable-damages-daniels-opinion-litman/index.html
https://www.shrm.org/resourcesandtools/legal-and-compliance/state-and-local-updates/pages/what-california-employers-need-to-know-about-sb-331.aspx#:~:text=California's%20SB%20331%2C%20which%20is,certain%20employment%2Drelated%20settlement%20agreements.
https://lawfilesext.leg.wa.gov/biennium/2021-22/Pdf/Bills/Session%20Laws/House/1795-S.SL.pdf#page=1
https://www.weil.com/-/media/publication/employer-update/2019/june-2019-employer-update.pdf
https://goaskalice.columbia.edu/answered-questions/erection-during-massage-what-do
https://www.corebenefits.com.au/blogs/news/the-truth-about-massage-and-erections