NJ Legislature Poised to Bar Non-Disclosure Agreements in Harassment Settlements and Potentially Bar Arbitration of Certain Claims

NJ Legislature Poised to Bar Non-Disclosure Agreements in Harassment Settlements and Potentially Bar Arbitration of Certain Claims

July 12, 2018

Earlier this year, several New Jersey Senators introduced Bill S121 aimed at prohibiting provisions in employment contracts or settlement agreements which have "the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment."  This Bill not only seeks to prohibit non-disclosure provisions which often appear in sexual harassment settlements, but also to prohibit the waiver of "any substantive or procedural right relating to a claim of discrimination, retaliation, or harassment."  Having been passed by the Senate by a vote of 34-1 on June 7, 2018, the Bill’s fate is currently in the hands of the General Assembly.

Bill S121, as currently drafted, would render any such non-disclosure provision "against public policy and unenforceable" against the employee.  Non-disclosure provisions would also be deemed unenforceable against the employer if the employee "publicly reveals sufficient details of the claim so that the employer is reasonably identifiable."  With respect to the latter situation, the Bill requires agreements to include a "bold, prominently placed notice" stating when the provision is unenforceable against the employer.  Aside from the general enforceability provisions, the Bill would also provide attorneys' fees and costs to prevailing plaintiffs who file suit based on a violation of the new law, as well as protections against retaliation on the grounds that an employee does not enter into an agreement containing a non-disclosure provision.

While the prohibition of non-disclosure provisions in settlement agreements is a substantial part of this proposed legislation, the broad prohibition governing employment contracts is problematic.  Specifically, the prohibition of waivers of "procedural rights" applies to all employment agreements and the Bill would prohibit any prospective waiver of rights or remedies, namely a jury trial, under the NJ Law Against Discrimination.  This affirmatively calls into question the enforceability of agreements to arbitrate claims made under the NJ Law Against Discrimination.  If enacted this will inevitably raise preemption issues under the Federal Arbitration Act.        

Since being introduced in early January, the Bill has been winding its way through the NJ Legislature.  If ultimately passed and signed by the Governor, the Bill would take effect immediately, applying to all agreements entered into or modified on or after the effective date.

In the wake of the #metoo movement, several states have passed – or are in the process of considering – similar laws.  See #MeToo Movement Sparks State Legislation Attempting to Eliminate Sexual Harassment in the Workplace. Thus, employers entering into settlement agreements involving claims of discrimination, retaliation, or harassment  should check state law before including a non-disclosure provision.