Alabama passes contractual non-disparagement act

Alabama’s Governor, Kay Ivey, recently signed the Alabama Non-Disparagement Obligations Act. The AL NDO Act is the first law of its kind in the nation, providing the default standards for parties who execute agreements containing non-disparagement provisions and seek to enforce those obligations in court. Given the broad application of the AL NDO Act, which will apply unless the parties explicitly opt out of its reach, Alabama employers and other businesses who enter into covered agreements should be aware of its reach and limitations.

The AL NDO Act applies to a broad range of agreements that contain non-disparagement obligations, including contracts with employees, business relationship termination agreements, and settlement agreements arising out of any type of litigation. The Act provides a cause of action based upon a “disparaging statement,” which the Act defines expansively to include both spoken and written words, whether delivered publicly or privately in one’s own name, anonymously, or through use of a pseudonym. Such a statement would support a claim under the AL NDO Act under a number of scenarios, including where it:

• Discredits or detracts from the reputation of a person's property, product, services, or business;
• Diminishes or depreciates a person by direct or indirect comparisons to anything invidious, scandalous, criminal, or loathsome.
• Raises doubts or questions about the quality, integrity, honesty, or character of a person or the person's affiliations.
• Discredits or detracts from the reputation of another's character, property, product, or business by disclosing truthful but private information.
• Discredits or detracts from the reputation of another's character, property, product, or business by disclosing truthful, but non-public information, or information gained within the context of a fiduciary relationship between the parties not otherwise protected by a trade secret statute.
• Is knowingly or recklessly made by a party that has clear and direct information that the statement was plainly false or misleading by its unreasonable incompleteness and that the communication of the misleading information would cause specific loss.

To support a cause of action under the AL NDO Act, the following elements must exist:

• The parties’ written and signed agreement, supported by consideration, must contain non-disparagement obligations, whether of the parties to the agreement or others affiliated with or employed by them;
• A disparaging statement is made by the person or party who is obligated not to make such statements; and
• Either of the following occur:
  • The communication of the disparaging statement proximately results in identifiable damage to the plaintiff; or
  • The terms of the covered contract automatically activate a liquidated damages provision, as defined in the AL NDO Act.

The AL NDO Act provides four affirmative defenses to a claim brought under it:

1. The disparaging statement was made in good faith.
2. The disparaging statement was made by mistake.
3. The disparaging statement caused no harm to the plaintiff.
4. The disparaging statement was retracted in such a way as to eliminate or reduce the harm to the plaintiff.

Enforceability of an NDO provision requires that the parties’ agreement carve out certain conduct which, when undertaken in good faith, is intended to accomplish the following purposes:

• Communicating with law enforcement or government regulators regarding a violation of law;
• Responding to lawfully served subpoenas;
• Conferring with a party’s attorney for the purpose of obtaining legal advice;
• Responding to a lawful discovery request;
• Prosecuting or defending a civil action between or among the parties to a covered contract, provided the statements are made via filing under seal; or
• Exercising federally protected statutory rights.

If a party prevails in an action based upon the violation of the Act, the court may award actual damages and injunctive relief. Additionally, if provided for in the contract, the court may award liquidated damages and/or reasonable attorney’s fees and costs.

It is important to emphasize that unless the parties’ agreement contains a non-disparagement provision, the AL NDO Act has no effect. The statute was not intended to create a cause of action where the parties did not contemplate imposing non-disparagement obligations, and contracting parties are empowered to make the statute inapplicable provided they do so via disclaimer that “expressly and plainly” states that the parties are knowingly waiving the statute’s protections.

Because the AL NDO Act only applies to contracts covered contracts executed after January 1, 2022, Alabama employers and other businesses have a few months to have any questions answered and, if necessary, make adjustments to language in contracts that will be executed after that effective date. If you have any questions about the AL NDO Act or any other matter related to non-disparagement agreements, restrictive covenants, or other employment matters, feel free to contact a member of Waller’s Labor & Employment practice group or Litigation & Dispute Resolution practice group.