Employers must be careful including penalties for violations of confidentiality and nondisparagement provisions in settlement agreements under a new law signed by Governor Hochul on November 17, 2023. Specifically, this law would invalidate a release of claims in any future settlement agreement that contains a condition requiring the complainant to pay the employer liquidated damages or to forfeit any portion of the settlement payment if the complainant violates a nondisclosure or nondisparagement provision in such settlement agreement.

For several years, parties settling employment claims asserted under the New York State Human Rights Law have been required to follow a strict statutory structure in order to include nondisclosure agreements regarding the factual foundation of the alleged misconduct. That structure, however, permitted the parties to agree upon liquidated damages or forfeiture of settlement payments in the event either party violated those nondisclosure provisions.

This new law outlaws such provisions and, most significantly, invalidates the release of claims if such provision is contained within a settlement agreement. Specifically, the new law states: "no release of any claims, the factual foundation for which involves unlawful discrimination, including discriminatory harassment, or retaliation, shall be enforceable, if as part of the agreement resolving such claim:

1. The complainant is required to pay liquidated damages for violation of a nondisclosure clause or nondisparagement claim;
2. The complainant is required to forfeit all or part of the consideration for the agreement, for violation of a nondisclosure clause or nondisparagement clause; or
3. It contains or requires any affirmative statement, assertion, or disclaimer by the complainant that the complainant was not in fact subject to unlawful discrimination, including discriminatory harassment, or retaliation."

Importantly, this law takes effect immediately.

The significant open question from this new law is whether it applies to run-of-the-mill separation agreements that are not settlements of employment claims. Based on the express language of the statute, it appears that this prohibition only relates to matters in which an employer resolves a claim of discrimination/harassment with a "complainant" and would not apply to a standard separation agreement and general release. We will continue to monitor guidance from New York on these issues.

It is essential for all employers to ensure that any settlement agreements of employment claims do not contain provisions providing for liquidated damages or claw backs in the event of a violation of a nondisclosure agreement; or any affirmative statement that the individual was not subject to unlawful discrimination, including discriminatory harassment or retaliation.

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