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New Jersey Outlaws NDAs in Employment Discrimination Settlements
On March 18, 2019, New Jersey Governor Phil Murphy signed a bill into law, amending the New Jersey Law Against Discrimination (NJLAD) to prohibit nondisclosure agreements (NDAs) in employment contracts and settlement agreements that have “the purpose or effect of concealing the details” of discrimination, retaliation, and harassment claims. The new law (full text available here) is effective immediately and applies to both new agreements and preexisting contracts that are “renewed, modified, or amended” on or after March 18th. Collective bargaining agreements, non-competition agreements, or confidentiality agreements protecting “proprietary information” like trade secrets and customer information are expressly excluded.
The new law states that any provision, in either an employment agreement or a settlement, which “has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment” is now against public policy and unenforceable against a current or former employee. NDAs would also be unenforceable against the employer if the employee chooses to publicly reveal “sufficient details of the claim so that the employer is reasonably identifiable.” This language would apply to NDAs that pertain to the facts of an underlying employment discrimination or harassment dispute. While the new law does not explicitly bar settlement provisions that designate only the amount of a monetary settlement confidential, the language is broad enough that it could be construed that way by the courts.
In addition, all agreements settling employment discrimination, retaliation, or harassment claims must now include a “bold, prominently placed notice,” stating that:
ALTHOUGH THE PARTIES MAY HAVE AGREED TO KEEP THE SETTLEMENT AND UNDERLYING FACTS CONFIDENTIAL, SUCH A PROVISION IN AN AGREEMENT IS UNENFORCEABLE AGAINST THE EMPLOYER IF THE EMPLOYEE PUBLICLY REVEALS SUFFICIENT DETAILS OF THE CLAIM SO THAT THE EMPLOYER IS REASONABLY IDENTIFIABLE.
The wording of this mandatory notice seems to contemplate that parties to discrimination settlements will continue to utilize mutual NDAs, even though the new law states they are now unenforceable. In effect, the notice warns employees that if they do choose to discuss their settled claim, the employer would be free to publicly respond regardless of what the agreement says. Ironically, this could have the effect of discouraging employees from speaking out about their settled discrimination cases, especially if their poor work performance, workplace misconduct, or the credibility of their underlying allegations were placed at issue during contentious litigation.
This new provision goes well beyond just discrimination settlements. Provisions in any employment contract waiving “any substantive or procedural right or remedy” relating to employment discrimination claims are also now “against public policy and unenforceable.” This includes rights and remedies under not just NJLAD, but “any other statute or case law.” This could include other state laws, like the New Jersey Conscientious Employee Protection Act (CEPA), which protects whistleblowers, and federal laws, like Title VII of the Civil Rights Act of 1964 (Title VII), which prohibits race, color, national origin, sex and religion discrimination.
The new law does not further define “any substantive or procedural right,” so it is unclear what employers can and cannot include in employment contracts moving forward. But while HR Legalist cannot read the collective minds of the New Jersey Legislature, this language is certainly broad enough to apply to: (1) class and collective action waivers, which prevent large groups of employees with similar claims from banding together and litigating against the employer as a single unit; and (2) arbitration provisions, which prevent employees from filing claims in court and require them to resolve their grievances before a private (and often employer-friendly) tribunal. If this language is indeed interpreted to bar class action waivers or arbitration agreements across the State of New Jersey, this could set up a legal clash with recent federal precedent upholding the enforceability of such provisions in the employment context (including the Supreme Court’s landmark Epic Systems case, decided in May 2018). As previously covered by HR Legalist, the New Jersey courts will enforce arbitration agreements, but only if they meet certain specific requirements.
Finally, the law prohibits retaliation against any person who refuses to enter into an agreement that contains prohibited language, and states that any person “claiming to be aggrieved” by any violation of the law can initiate a suit in New Jersey Superior Court within two years, and may seek damages and reasonable attorneys’ fees and costs.
While it remains to be seen how the courts will interpret some of the broad and ambiguous language contained in this new law, two things are now clear: (1) employers need to incorporate new mandatory language into all employment settlement agreements going forward; and (2) employees who experience retaliation for refusing to enter an agreement with an unlawful NDA or waiver of rights or remedies can take their employers to court and recover damages. Employees who refuse to sign an agreement based on a reasonable belief that it is illegal could also have a claim under New Jersey’s broad CEPA whistleblower law. In short, this law could have a significant impact on both employment practices and litigation practices in New Jersey. Employers with questions about the impact of this new law on their employment agreements and their defense of discrimination claims should contact counsel with employment law and employment litigation experience.