Cleary Gottlieb Discusses Non-Disparagement Clauses

In September, former Uber executive Eric Alexander filed a complaint (the “Complaint”) against another former Uber executive, Rachel Whetstone. The Complaint alleges breach of a mutual non-disparagement clause in Whetstone’s separation agreement with Uber; a clause that Whetstone, during her negotiation with Uber, apparently insisted specifically name Alexander and preclude them from disparaging each other. In the Complaint, Alexander alleges that he is a third party beneficiary of the contract and can therefore enforce the non-disparagement obligation against Whetstone.

The Complaint, filed in California state court, alleges that Whetstone disseminated false and/or misleading information to reporters and others about Alexander’s involvement in Uber’s response to an allegation of rape against an Uber driver in India. At issue in that dispute is Alexander’s alleged handling of the rape victim’s medical files in defending Uber against the victim’s civil suit. He is said to have illegally obtained, read and discussed the records, and insinuated both that the medical records showed a lack of physical damage (i.e., thereby questioning the rape itself) and that the rape was part of a competitor’s conspiracy. Alexander denies these allegations, and instead devotes a portion of the Complaint to his belief that in fact the perpetrator would not have been criminally tried or convicted in India but for his personal efforts to assist (and his insistence that Uber assist) the prosecution in its case against him. On June 6, 2017, when Bloomberg and Recode threatened to, and ultimately did, publish stories suggesting that Alexander had illegally obtained and carelessly treated the medical records, Uber terminated his employment. Alexander alleges that these stories and those published for months thereafter were the result of Whetstone, whose own employment had been terminated by Uber in April 2017, continuing to contact the press.

The Complaint, filed without supporting materials (including the alleged non-disparagement obligation), and underlying facts are unusual for a few obvious reasons, but they also raise a number of interesting questions:

  • Whetstone is the only named defendant, although the Complaint follows a demand letter Alexander sent to Uber in May 2018, threatening a lawsuit against Uber, Whetstone and four other female current and former Uber executives (but not any men, including Travis Kalanick, the former Chief Executive Officer). It is possible Alexander signed a release when his employment was terminated (although one would have thought he also then signed his own non-disparagement clause, which might be implicated by sending a demand to Uber and making claims against its executives), and that his only potentially lucrative course of action was against Whetstone on the basis of her non-disparagement obligations. But his pursuit of only female Uber executives, fairly or otherwise, calls to mind some of the boys’ club claims and the “he said/she said” fears that have bubbled up in the #MeToo era.
  • It is very common for an executive to agree to a non-disparagement provision when separating from employment. It is also not unusual for the company to agree that a select group of employees, typically directors and/or executive officers (a “covered group”), will not disparage the departing employee (or that the company will at least issue an instruction to the covered group or its employees generally that they should not disparage the departing employee), although some companies prefer to have no non-disparagement clause at all than to agree to a mutual one (i.e., a clause that binds the company as well as the executive). Generally these obligations have been viewed as unlikely to result in legal action – why would a company or an executive typically want to further publicize disparaging comments by filing a lawsuit about them? – and so they tend not to be heavily negotiated, beyond whether they should be mutual. To date the paucity of case law regarding enforcement of these provisions in the employment context bears out that view. While the unusual facts of the Complaint should not undermine that premise, it does seem to raise the question of whether changes to the typical provision and its implementation are warranted, as follows:
  • What steps should a company take to inform the covered group that the company has included them in the obligation and to ensure their compliance? Should a company expressly communicate that an individual’s violation of the provision could result in disciplinary action?
  • Does a non-disparagement provision give rise to an implication that members of the covered group are de facto parties to the agreement and/or third-party beneficiaries of the provision? In other words, does that mean that they may be subject to a claim by the terminating employee for disparaging the terminating employee or, as alleged in the Complaint, that they may bring an individual claim, not on behalf of the company, against the terminating employee for disparaging them? Should the contract expressly address those potential implications? Certainly from the company’s perspective it seems that little good can come from executives, current or former, pursuing each other over claims of disparagement and companies may wish to consider whether an express disclaimer of third party beneficiary rights is warranted.
  • Finally, the Complaint alleges only a breach of contract cause of action, and does not pursue a claim for the tort of defamation. There may be many reasons, tactical or otherwise, for this, but one reason might be that whereas truth is a defense to a defamation claim, a contractual breach claim will be decided on the basis of the words in the contract. Generally when these provisions have been litigated courts have found that, absent clear language to the contrary, “disparagement” for purposes of a contractual claim requires only efforts to discredit or criticize, without regard to truthfulness. Companies may, depending on the circumstances, wish to expressly agree that the non-disparagement obligation is limited to untruthful statements, or conversely that the non-disparagement covers any negative statements, truthful or otherwise.

This post comes to us from Cleary, Gottlieb, Steen & Hamilton LLP. It is based on the firm’s blog post, “Shut Up! (Someone Is Actually Suing on the Basis of a Non-Disparagement Clause)” dated October 26, 2018, and available here.

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