Confidentiality Optional: New Jersey Nixes NDAs and Arbitration for Discrimination and Harassment Claims

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In the wake of the #MeToo movement, lawmakers nationwide proposed legislation with expressed goals of preventing future sexual harassment scandals. Many proposed bills expired in committee and only a select few became law. New Jersey’s Senate initially proposed S-121 in January 2018. Governor Phil Murphy just signed it into law on March 18, 2019 (full text here).

This legislation bans nondisclosure provisions that seek to prevent disclosure of the details – including the settlement amount – relating to any type of workplace discrimination, retaliation, or harassment claim:

A provision in any employment contract or settlement agreement which has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment (hereinafter referred to as a “non-disclosure provision”) shall be deemed against public policy and unenforceable.

The plain language encompasses far more than workplace sexual harassment claims. Unlike the New York nondisclosure law, which only applies to the facts underlying claims of sexual harassment, this law encompasses all types of discrimination, retaliation, and harassment claims for all protected characteristics under the New Jersey Law Against Discrimination.

In contrast to the New York nondisclosure law, the New Jersey law does not recognize as enforceable a confidentiality provision even if the provision is the employee’s preference. The New Jersey law provides that if parties agree to a confidentiality, the employee can void this confidentiality provision at his or her option at any time, even after accepting the consideration from the employer. If the employee “publicly reveals sufficient details of the claim so that the employer is reasonably identifiable,” then – and only then – can the employer be released from its confidentiality obligations under the agreement.

To the extent employers intend to include a confidentiality provision in a settlement agreement, the agreement must also include a “bold, prominently placed notice” explaining that the confidentiality provision is unenforceable against the employer if the employee chooses to speak out. Under this law, the employee’s incentive to honor his or her confidentiality obligations is that failing to do so would allow the employer to publicly respond to the employee’s claims. Logically, however, this would only apply if the nondisclosure provision was mutual.

The nondisclosure prohibition in the New Jersey law is somewhat controversial. Proponents of the new legislation contend that it will help prevent recidivist sexual harassment, and that, as a matter of public policy, victims of harassment should not be precluded from speaking about their experience. Opponents argue that the law will create a disincentive for employers to settle. If that occurs, individuals may be discouraged from reporting discrimination, harassment, or retaliation, fearing that an employer’s reluctance to settle will force employees into public and protracted litigation.

Prior to enactment, employers received some needed clarity as to how this nondisclosure prohibition would impact post-employment restrictive covenants and confidentiality agreements. The Assembly Appropriations Committee amended the bill in January 2019 to ensure the continued viability of noncompete agreements as well as agreements requiring employees to keep proprietary information under wraps.

The New Jersey law also prohibits mandatory arbitration: “a provision in any employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment.” As other states (like California) have noted, this type of state law would likely be preempted by the Federal Arbitration Act if challenged. See Kindred Nursing Centers LP v. Clark, 137 S. Ct. 1421 (2017) (holding that the Federal Arbitration Act preempts state law that would preclude arbitration agreements).

The law is effective immediately and provides a two-year period statute of limitations. New Jersey employers may wish to review severance agreements and policies, as well as arbitration agreements. Most critically, employers in New Jersey will need to give thought to how to negotiate and structure settlement agreements for discrimination and harassment claims when they will not be able to ensure the confidentiality of those agreements, the settlement payments or the facts surrounding the settled claim.

See our previous blog posts on sexual harassment legislation developments here.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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