Racial-Discrimination Settlements Usually Came With an NDA. That’s Changing.

“It’s either your self-interest and what’s meaningful to your household or the interest of the larger group,” said Mr. Gumbs, a 41-year-old executive who left Medtronic earlier this year.

Companies have long relied on agreements with confidentiality provisions and nondisparagement clauses to settle discrimination and other workplace complaints. In exchange for a payment, workers aren’t allowed to speak negatively about the company, discuss terms or in some cases even refer to the existence of a nondisclosure agreement, or NDA.

While some workers have appreciated settling a problem quietly, the deals usually put companies in the driver’s seat.

That balance of power is now being questioned.

More employees are demanding that exit agreements permit them to speak out about their experiences and what they believe to be discrimination. Companies themselves are rethinking what level of confidentiality is appropriate.

A shift in attitudes over NDAs started after #MeToo put a spotlight on how the settlements might be used to suppress information about wrongdoing, and has built steam since the killing of George Floyd in police custody and the ensuing protests about racism in society.

In some cases, such agreements can keep hidden allegations of hostile work environments, promotion discrimination and racial harassment, according to companies, employment lawyers and more than a dozen Black executives who signed such agreements.

Many of the Black employees say they now regret taking payouts that prevented them from going public about their experiences, and plaintiff lawyers say clients are asking them to review their exit agreements and evaluate the risks of speaking out.

Since the #MeToo movement, new laws in some states have limited the use of confidentiality provisions in matters involving sexual harassment and discrimination, and the 2017 federal tax overhaul prevented companies from deducting the expense of settlements related to sexual misconduct. Some of the changes also affected employees alleging racial discrimination.

PepsiCo Inc. said it changed its separation agreements in 2019 to inform employees that the form doesn’t limit their right to speak openly about any allegations of harassment and discrimination. Earlier this year, Condé Nast said it would no longer use NDAs in settling allegations of sexual harassment, discrimination and retaliation. The magazine publisher said it would release former employees from existing NDAs for these issues.

Kerry Notestine , a Houston-based lawyer at Littler Mendelson PC, said rather than using different separation agreements for each state, some companies are asking him to prepare forms that reflect the most sweeping state laws and make clear that the company isn’t silencing employees on sexual harassment or discrimination matters. “Employers are realizing that they have to be really careful about restricting these kinds of conversations right now,” he said.

Medtronic, which makes pacemakers, stents and other medical devices, said it is reviewing its NDA policies and working to diversify its management and create a culture where people can speak up freely. “We hear, understand, and are taking action on the deeper and more important message in all this: racial inequity in the workplace must not be ignored,” a spokesman said.

Mr. Gumbs, who worked for almost 13 years at Medtronic, said he complained to human resources and managers several times that the company’s promotion process was rigged against Black employees. Mr. Gumbs, a former global senior director, said he was a top performer who left voluntarily this year after he concluded he would never reach the top ranks.

While in the middle of settlement negotiations with Medtronic this summer, he was of two minds about speaking about his experience. His lawyer was pushing the company for a payment, which his family also wanted him to consider. Mr. Gumbs said he also feared that going public could get him shunned in his industry. “I’m super nervous,” he said, “like I had trouble sleeping at night.”

He said he ultimately decided to speak out because he felt a heightened sense of responsibility in the wake of Mr. Floyd’s killing.

In recent years, Medtronic has paid out settlements to several Black employees who have alleged racial discrimination in the company’s promotion process, according to people familiar with the matter. One former Black employee at Medtronic said she wanted to share her experience publicly but was afraid of violating the provisions in an agreement she signed.

“Employment-related litigation settlements aren’t used by Medtronic as a means to suppress the issues or hide information regarding the challenges African Americans face at our company and across the corporate landscape,” the Medtronic spokesman said. He said settlements with mutual nondisparagement clauses and confidential monetary terms are a common practice.

Lawyers on both sides of workplace complaints say the use of NDAs benefits employers and employees. “Settlements are only happening because both parties believe they are mutually beneficial—that’s how deals work,” said Dan O’Meara , a Philadelphia-based lawyer with Ogletree Deakins who represents employers.

Mr. O’Meara said settlements allow companies to save money on legal fees, avoid the distraction of litigation and prevent negative publicity. He said the employee receives money to start over and avoids having to listen to the employer’s case. “Nobody wants to hear a charged description of how incompetent they were,” he said. “That can be very demoralizing.”

Jeanne Christensen , a New York-based lawyer with Wigdor LLP who represents employees in workplace disputes, said lawyers are getting more questions about confidentiality agreements and whether workers who signed them can speak up now. “They are saying, ‘Will you review my agreement and tell me what my obligations are?’ ” she said.

In July, Ms. Christensen wrote a public letter to Morgan Stanley’s board, asking the investment bank to release former Black employees from their nondisclosure agreements. She said the bank didn’t reply. Morgan Stanley declined to comment.

Companies often will respond to racial discrimination allegations by laying the groundwork for a legal defense, which sometimes means documenting problems with an employee’s performance, said Peter Cappelli , a professor at the Wharton School of the University of Pennsylvania who specializes in human-resources practices.

PepsiCo, Medtronic and other companies said they have hotlines for employees to make anonymous complaints and have established policies to prohibit retaliation.

Veronica Fields , a former senior manager at PepsiCo, signed a settlement in December 2017 to part ways quietly after she told the company she was subjected to racial discrimination and sexual harassment by men who worked for her.

Ms. Fields, 40, had a 13-year career at PepsiCo. As senior fleet manager, she had about 60 drivers—mostly white men—reporting to her. She was the only Black woman in that role at the company’s U.S. bottling group, she said.

Ms. Fields said some drivers circulated letters saying she was hired to fulfill a diversity quota, filed prank complaints on the HR hotline and bullied her verbally. One driver called her the N-word, and told another driver, “I would do her even though she is a darkie,” she said.

She said she reported the behavior to HR. As a result, one employee was fired and another was forced to retire. But after the incident, a senior leader asked her what she could do differently to make the employees like her more, she said.

Ms. Fields said the leader, a white man, held a series of “round table” discussions with her employees. She said she worried the company was trying to find problems with her. “They didn’t care about fixing the culture. They just wanted to move on,” she said.

Ms. Fields said she agreed to a settlement with PepsiCo because at the time she was afraid publicizing her experience would hurt her career prospects. “As an African-American woman, where am I going to get a job if you see me online?” she said.

She said she regretted agreeing to the settlement when she later learned that other Black employees had been offered similar ones. “People are still suffering in silence,” she said.

PepsiCo declined to comment on individual employee matters, but a spokesman said that “discrimination of any kind is not tolerated within PepsiCo. We are committed to respecting human rights and supporting diverse and inclusive workplaces.”

The spokesman said the company has committed to increasing its number of Black managers. Black people make up 8.2% of senior-level professionals and managers in the U.S., according to PepsiCo’s 2020 data.

Companies often require employees to sign agreements with nondisparagement clauses and confidentiality provisions to receive a standard severance payment in exchange for a release of liability, including discrimination claims.

If an employee doesn’t waive the right to sue, the person usually doesn’t receive severance or other payments beyond vested pension benefits or accrued vacation time that the employee is already entitled to receive. In cases in which racial discrimination is alleged, employees often will hire a lawyer to negotiate a settlement, or extra payments, before signing the agreement. These workers have received settlement amounts of $100,000 or more, according to employees and lawyers.

Kenya Scott , a former senior sales manager at PepsiCo, said she wanted to sue the snack and soda giant but took a settlement because she worried about how she would support her family without any interim pay. She said she wouldn’t receive an exit payment if she didn’t sign the agreement. “You’re actually left with absolutely nothing to start over,” she said. “It feels like you have an option, but the truth is there is no option.”

Ms. Scott, who worked at PepsiCo from 2004 to 2015, said she departed after she complained to HR that a boss was targeting her because of her race and found no support from the company. Ms. Scott, 49, said she is speaking up now to make more people aware of the predicament she faced.

Ms. Scott and Ms. Fields hired a lawyer to negotiate extra payments to resolve their complaints.

PepsiCo said its agreements with the women predate the changes it made in 2019 but don’t prohibit them from filing a complaint to the Equal Employment Opportunity Commission, a federal agency charged with enforcing laws against workplace discrimination.

There are questions about what kinds of limitations on speech in a contract are valid. The EEOC says courts have ruled portions of NDAs unenforceable that prevent employees from reporting discrimination to the EEOC or participating in government investigations. Companies say most agreements only limit employees from disclosing trade secrets or the financial amount of a settlement.

Several Black employees said they were nevertheless told by their lawyers they shouldn’t speak about their experiences and feared they would have to return the money they received if they did.

“There’s a lot of misinformation, and it has a chilling effect on protected speech,” said Orly Lobel , a law professor at University of San Diego who has studied secrecy clauses in workplace agreements. She said a patchwork of existing laws and guidance from regulators would make it difficult for a company to enforce a confidentiality agreement for a matter involving racial discrimination.

Most lawyers interviewed by The Wall Street Journal said they couldn’t think of any recent examples of companies cracking down on a confidentiality provision for allegations related to racial discrimination.

“If the employer tried to enforce that provision, it’s a PR nightmare right now,” said Mr. Notestine, the lawyer at Littler Mendelson.

But the broad language of some confidentiality clauses along with the threat of litigation still discourages employees from speaking up, Ms. Lobel said. “It’s a scary prospect when the law is not explicit on this,” she said. “There’s a fear and a risk analysis that employees do.”

Dawn Kelly , a Black former executive at Prudential Financial Inc., said she signed a standard severance agreement when she left the life-insurance company in 2015. She said her job was eliminated in a restructuring months after she complained several times to an HR executive about a boss she felt was targeting her based on her race.

“I just took it and felt that I couldn’t really talk to anybody,” Ms. Kelly, 58, said of the severance amount, which required her to sign an agreement with a nondisparagement clause. She said she didn’t receive an extra payout.

Years after leaving, she said, she complained about her former boss on Facebook, and Prudential sent her a warning letter reminding her of the nondisparagement clause. Ms. Kelly said she edited the Facebook post to remove the word “racist” and sent a letter to Prudential telling the company she wouldn’t take the post down. She didn’t hear back.

“I feel like they have no right to tell me what I can say about a place where I worked,” she said.

Prudential declined to comment on the letter but said it has a zero-tolerance policy for discrimination and investigates all allegations and takes appropriate disciplinary actions. “Our investigation found no evidence to substantiate any allegation of misconduct made by Ms. Kelly,” a spokesman said.

In October 2018, Dorinda Walker , a Black former executive at Prudential, sent an email congratulating Charles Lowrey on his appointment as CEO. The email raised concerns about the culture in her division, the same one Ms. Kelly worked in.

Ms. Walker, who didn’t provide the email to the Journal, said she wants to discuss her experience publicly but is unsure if that will violate the terms of her separation agreement.

The spokesman for Prudential said Ms. Walker signed a standard separation agreement with a nondisparagement clause and confidentiality provision that prevents her from discussing the terms of the agreement, such as the compensation amount. He also said the claims made in Ms. Walker’s email were investigated and not substantiated. (Read Ms. Walker’s email.)

Mr. Gumbs said he was one of the few Black M.B.A. students recruited as part of an elite program to join Medtronic in 2007. While some of his colleagues in the program were made sales managers in the field, he said he was asked to start two levels below as a clinical associate. “I was just young and dumb and thought I needed to work hard,” he said.

The remainder of his time at Medtronic, he said, was marked by a “series of impossible tasks” that were asked of him and not of his white colleagues. His goal was to become a vice president and then a general manager, a position that he said some employees with similar or fewer credentials were able to reach in about 10 years.

He said he was repeatedly passed over for more senior roles and was told it would take about 20 years to become a general manager from the time he started at the company. Mr. Gumbs said he raised concerns to HR and supervisors about the discrepancy between his own timeline and that of white colleagues, calling it “institutional racism.”

“You can call it unconscious bias or call it what it is, but you got a Black guy with two Ivy League degrees, in the top 5%” of his division, who then faces a chasm trying to go from director to vice president, he said.

Medtronic said Mr. Gumbs was a rising star who was promoted six times. “Medtronic saw his potential and his talent and never wanted him to leave,” a spokesman said. “We regret that we were not able to meet his career expectations on a timeline he believed to be reasonable.”

“While disturbing to hear, there is nothing that Mr. Gumbs has alleged or claimed regarding obstacles that African American executives can face at Medtronic that is news to us,” the spokesman said. “This does not make it acceptable and so we must work harder to get these issues out in the open to be discussed and addressed.”

In February, Mr. Gumbs left for another health-care company, Cardinal Health Inc., which hired him as a vice president. Eight months later, he said he was still negotiating with Medtronic over a settlement. The talks included whether there will be a mutual nondisparagement clause with a carve-out for the details Mr. Gumbs had already shared publicly. Medtronic declined to comment on the status of the negotiations.

Write to Khadeeja Safdar at [email protected]