The Unintended Costs of Weakening NDAs: Female Hiring at VC-Backed Startups

Media reports in 2017 of Harvey Weinstein’s sexual misconduct ignited a national debate over workplace sexual harassment and assaults. For years, Weinstein used secret non-disclosure agreements (NDAs) to silence victims of sexual harassment. The following #MeToo movement forced a long-overdue reckoning over workplace sexual harassment and brought NDAs to the attention of the public and lawmakers. 

Sexual harassment and assault are rampant in the U.S. A 2019 national survey revealed that 38% of women and 14% of men reported experiencing sexual harassment or assault in the workplace, while 81% of women and 43% of men reported experiencing sexual harassment or assault in their lifetime. The situation is particularly grim in fast-growing, entrepreneurial sectors. The Women in Tech 2023 survey revealed that 42% of women and 24% of men in the high-technology industry reported experiencing sexual harassment. Crucially, the data shows that most workplace sexual harassment victims are women: nearly 80% of sexual harassment charges between 2018 and 2021 were filed by women.

Workplace sexual harassment is a form of sex discrimination that violates Title VII of the Civil Rights Act of 1964. However, the vast majority of victims do not report harassment and even fewer of them file a formal complaint within their institutions, because of fears of blame, disbelief, and retaliation.  

NDAs provide additional protection to sexual harassers, encouraging this toxic workplace culture. Originally designed to protect trade secrets and intellectual properties, NDAs have been misused by employers to silence sexual harassment victims and conceal misconduct. In response to the national debate over workplace sexual harassment, starting in 2018, a wave of states enacted laws that weaken or invalidate NDA clauses concerning sexual harassment, a movement that culminated in the federal Speak Out Act of 2022. 

These state-level legal reforms alter a firm’s risk calculus concerning workplace sexual harassment and NDAs. While intended to protect women and boost their labor supply by fostering safer work environments, these state laws elevate employers’ legal and reputational costs.  Consequently, this increased legal compliance cost can reduce a firm’s demand for female workers.

Our recent study shows that, rather than enhancing female employment, these well-intentioned NDA reforms led to a significant decline in female hires at venture-capital-backed (VC-backed) startups—an important engine of innovation and job creation that remains historically male-dominated.  Examining over 80,000 U.S. VC-backed startups, they discover that firms headquartered in treated states hired about 8% fewer female workers per year following the enactment of NDA-weakening laws, compared to startups in untreated states. The decline is economically meaningful. For young startups heavily reliant on talent, the annual drop accumulates to 39% fewer female hires over five years, which could severely disrupt the growth of VC-backed startups. 

The reduction in female hires is not uniform. It is concentrated among junior female workers. This makes sense because junior women are more likely to be victims of sexual harassment. Startups respond to the elevated legal compliance cost by hiring fewer junior women. Additionally, the decline in female hires is more pronounced among small startups and those with lower pre-existing female representation. These startups are more likely to lack strong internal human resources protocols or robust safeguards to prevent and manage sexual harassment, leaving them more exposed to the new legal environment. Conversely, larger startups with established HR departments and greater pre-existing female representation experienced much smaller declines, suggesting that organizational infrastructure can buffer the adverse effects of these legal reforms.

The findings are in line with prior studies on the unintended consequences of labor-protection regulations. For instance, Acemoglu and Angrist (2001) find that the Americans with Disabilities Act reduced employment for disabled workers because firms internalized the higher expected costs of legal compliance. 

Besides reduced female hires, the study also reveals profound organizational restructuring within VC-backed startups following the enactment of NDA-weakening state laws. Perceiving greater legal compliance costs, startups respond to NDA-weakening laws by promoting more women to managerial and senior leadership positions. Such elevation to management is usually a first step toward strengthening women’s voices in the workplace. Startups also witness a significant increase in the departure of male managers after the enactment of NDA-weakening laws. These findings are consistent with the view that startups are preemptively removing potential harassers from positions of power and promoting women into positions that would create a safer workplace environment for women. 

These results paint a nuanced picture. NDA-weakening laws help protect women from workplace sexual harassment and encourage startups to promote more women, which in turn, could attract more women to join and stay in the workplace, especially over the long run. However, such laws also discourage startups from hiring women, potentially only in the short term, because they increase startups’ legal compliance costs. It seems that the negative effects on the demand for women outweigh the potential positive effects on the supply of female workers, resulting in fewer female hires. 

Ultimately, a safe workplace requires more than just legal prohibition.  It demands that organizations develop internal safeguards to prevent and punish workplace sexual harassment.Over time, as toxic managers leave and female leadership grows, the short-term reduction in female hires may pave the way for a safer and more inclusive startup ecosystem. Getting these dynamics right is critical: VC-backed startups drive a disproportionate share of innovation and job creation, and ensuring that women can fully participate in this sector has far-reaching implications for the broader economy.

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Jun Chen is an Assistant Professor of Finance at the University of Illinois Chicago.

Song Ma is a Professor of Finance and Entrepreneurship at Yale School of Management (SOM), an NBER Faculty Research Fellow, and an ECGI Research Member.

Feng Zhang is an Associate Professor of Finance at the Cox School of Business, Southern Methodist University.

This blog is based on a paper presented at the 2026 Corporate Governance Symposium and John L. Weinberg/IRRCi Research Paper Award Competition on 6th March 2026. Visit the event page to explore more conference-related blogs.

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