New Jersey Governor Phil Murphy (D) signed into law last month legislation that bans nondisclosure agreements in cases alleging discrimination, retaliation, or harassment.

More precisely, what the law does is say that those provisions are unenforceable. The law also renders void any employment contract that waives substantive or procedural rights or remedies relating to discrimination, retaliation, or harassment. The prohibition on waivers of procedural rights or remedies would seem to make arbitration agreements void, though that is not yet clear.

Less controversial provisions in the legislation provide that rights under the New Jersey Law Against Discrimination cannot be waived prospectively (that is, before a claim arises under the NJLAD). The legislation also provides that if an employee publicly reveals information about a discrimination, retaliation, or retaliation claim that allows for the employer to be identified, then the employee will not be able to enforce an NDA against the employer.

Here are some Qs and As about the legislation:

When does the new law take effect?

It has been in effect since March 18.

Does it apply to agreements already in existence before March 18?

No, only to agreements entered into on or after March 18. However, we believe the law would apply if a pre-existing agreement were modified in any way or “renewed” after March 18. Also, it should be noted that the law does not apply at all to collective bargaining agreements.

What exactly is a “non-disclosure agreement,” or NDA?

That is a provision very common in settlement agreements, in which the parties agree to keep the facts related to their dispute, and the terms of their agreement, confidential. The New Jersey law implies that the parties will still be able to keep the terms of their agreement confidential (for example, they could still agree not to disclose the amount paid), but not theunderlying facts related to their dispute.

Let’s say an ex-employee in New Jersey sues the employer under Title VII only, which is a federal law. Then the ex-employee and the employer enter into a settlement agreement. Would this law apply, since there are no New Jersey claims?

Yes, it would still apply, because even though federal law would apply to the employee’s substantive claims, the courts would look to state law (in this example, New Jersey law) to determine whether the settlement agreement was enforceable. (Also, even if the employee’s claims were only federal, the release in the agreement would undoubtedly include New Jersey, as well as federal, claims.)

Could you get around that by putting in the agreement that it will be governed by another state’s law?

Probably not. If the employee was in New Jersey, the courts would be likely to say that the employee was entitled to the protections of the law.

How does this law apply to employment arbitration agreements?

The law doesn’t directly say anything about arbitration agreements. But because it says that any provision in an employment agreement that waives “any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment,” may apply to arbitration agreements as well. In an arbitration agreement the parties give up their rights to go to court and to have jury trials. Arguably, that is a “procedural right or remedy.”

But hasn’t the U.S. Supreme Court taken a very favorable view of employment arbitration agreements? How can that be reconciled with this law?

Yes, the Supreme Court has applied the Federal Arbitration Act very broadly and says that it shows Congress intended for employment arbitration agreements to be generally enforceable. (There are exceptions for certain workers in the transportation industry.) A court could find that the New Jersey law – to the extent that it might be interpreted to ban arbitration agreements – is itself void in light of the FAA. We do expect to see lawsuits challenging this part of the New Jersey law on FAA grounds.

Can you explain the provision about employees who reveal facts that would allow the employer to be identified?

Yes. If the parties enter into an agreement with an NDA on or after March 18, that NDA is void and unenforceable. However, the law says that if an employee publicly discloses enough information about the underlying facts “so that the employer is reasonably identifiable,” then the NDA is unenforceable against the employer, too. In other words, the employer would then have the right to freely disclose information about its side of the dispute.

An example might make this more clear. Assume an employee with performance issues accuses her manager of sexual harassment. The manager denies that he sexually harassed the employee, and the employer conducts a thorough investigation and determines that no harassment occurred. However, to avoid the cost of litigation and the possibility of embarrassing publicity, the employer agrees to settle with the employee. In exchange for a relatively nominal amount, she resigns and promises not to seek reemployment. The agreement contains an NDA.

After the agreement is signed and the employee accepts payment, she posts on her public Facebook page that people should not patronize the employer’s business because it condones sexual harassment. She has not breached the agreement because the NDA is unenforceable in any event.

However, under our interpretation of the New Jersey law, the employee’s public statement identifying the employer frees the employer to disclose the underlying facts of the dispute, including the performance issues, the nominal amount of the settlement, and the manager’s denial coupled with the fact that the employer investigated and found no merit to the allegations.

And one more “but” – the NDA will remain enforceable against the employer unless the settlement agreement contains a specific “disclaimer” warning the employee that this is a possible consequence of her disclosing employer-identifying information. The statement must be in bold font and must appear prominently in the agreement.

So, does this mean an employer should continue to include an NDA in an agreement settling harassment, retaliation, or discrimination claims, as long as it includes the prominent disclaimer?

We believe so. The other alternative would be to have no NDA, in which case neither party would be restricted. The worst case would be to include an NDA without the disclaimer. That would allow the employee to speak freely, but presumably the NDA could still be enforced against the employer, preventing it from speaking up in its own defense.

Are there any retaliation provisions in this law?

As already discussed, the law applies to settlements of all claims involving discrimination, retaliation, and harassment. But in addition to that, the law says it is unlawful for employers to retaliate against employees (or former employees) who refuse to sign agreements with terms that are unenforceable under the law.

Are there any other penalties for employers who fail to comply with the law?

Yes. If an employer tries to enforce an unenforceable employment agreement or NDA, the individual can sue the employer and can recover attorneys’ fees and costs. Individuals can also bring their own private lawsuits against employers under the law. The statute of limitations is two years from the date that the claim “accrues.” (For example, if an employer entered into a prohibited agreement in 2019 but did not try to enforce the agreement until 2022, the statute of limitations would begin running from the 2022 date, not the date of the agreement.)

What should employers with New Jersey operations do to comply with the law?

First, they should review their employment and settlement agreement templates and revise them to comply with the law. If they entered into any agreements on or after March 18, those agreements should be reviewed and, if necessary, amended to conform to the law and re-signed. Employers who use employment arbitration agreements will also need to decide whether they want to be a “test case” or whether they would prefer to simply suspend the use and enforcement of arbitration agreements while that issue is resolved by other litigants.