Jersey: New Jersey May Enact New Restrictions On Confidentiality Provisions In Agreements With Employees In Wake Of #MeToo Movement

On January 31, 2019, the New Jersey Legislature passed Senate Bill 121, which places significant restrictions on the ability of employers to keep confidential details of claims of discrimination, retaliation or harassment asserted by current and former employees. Governor Phil Murphy is expected to sign the bill, which will then become effective immediately. Senate Bill 121 will apply to all contracts and agreements entered into, renewed, modified or amended on or after the date the bill is signed.

Continuing the Trend of Legislative Responses to the #MeToo Movement

New Jersey Senate Bill 121 follows the growing legislative trend designed to prevent employers from suppressing employee allegations of harassment and discrimination in the wake of the #MeToo movement. In 2018, at least three other states passed laws with provisions similar to, albeit not as broad as, Senate Bill 121:

  • California passed SB 820 in September 2018, which prohibits the inclusion of certain provisions in confidential settlement agreements and nondisclosure agreements in the settlement of sexual harassment cases.
  • Maryland passed the Disclosing Sexual Harassment in the Workplace Act of 2018 in June 2018, which makes null and void any provision in an employment agreement that waives a substantive or procedural right or remedy to future claims of sexual harassment or related retaliation.
  • New York passed the Stop Sexual Harassment in NYC Act in April 2018, which prohibits mandatory arbitration of sexual harassment claims and restricts the enforceability of nondisclosure agreements.

Unlike the California, Maryland and New York laws noted above, New Jersey's law is not limited to claims of sexual harassment and/or retaliation; it covers all claims of discrimination, retaliation or harassment.

Waivers of Substantive and Procedural Rights and Remedies

Under Senate Bill 121, any provision in an employment contract (excluding collective bargaining agreements) that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation or harassment shall be deemed against public policy and unenforceable. This bill does not explicitly prohibit mandatory arbitration, although employers may see an uptick in challenges to mandatory arbitration of such claims in New Jersey given the breadth of Senate Bill 121. Any prohibition on mandatory arbitration would conflict with existing state and federal law favoring arbitration as a means of dispute resolution. The Federal Arbitration Act, which embodies strong congressional intent favoring enforceability of arbitration agreements, may preempt state law on this issue.

Nondisclosure Provisions in Employment Contracts and Settlement Agreements

Senate Bill 121 prohibits nondisclosure provisions in employment contracts and settlement agreements that have "the purpose or effect of concealing the details relating to a claim of discrimination, retaliation or harassment." This law makes clear that employers cannot buy an employee's silence through broad confidentiality provisions. The law does not specifically address whether the term "details" relating to such claims pertains to the factual allegations and the existence of a settlement only or also encompasses the terms of the settlement (e.g., the amount of the monetary payment). While we expect and hope that employers shall remain able to keep the amount of any settlement payment confidential, this is one issue that may be clarified or addressed in later regulations, agency guidance or judicial decisions.

While nondisclosure obligations imposed upon employees or former employees will be rendered illegal under the law, nondisclosure provisions applicable to employers are enforceable, unless an employee publicly reveals details of the claim of discrimination, retaliation or harassment sufficient to identify the employer. The law specifically requires that settlement agreements resolving employee discrimination, retaliation or harassment claims include a "bold, prominently placed notice" that states the following:

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.

This provision appears designed as a warning to employees only, since employers cannot require nondisclosure of the "details" of any settlement per the law, as discussed above.

The law clearly states that employers are not prohibited from requiring employees to sign nondisclosure agreements that relate to "proprietary information, which includes only non-public trade secrets, business plan and customer information." The law also does not foreclose an employer's right to enter into noncompete agreements with employees.

Private Right of Action and Remedies Available

Senate Bill 121 prohibits employers from taking adverse employment action against any employee or prospective employee who refuses to enter into an agreement with any provision made unenforceable by the law, including refusing to hire the individual. The bill also prohibits an employer from enforcing or attempting to enforce a prohibited contractual provision. If an employer violates the law, aggrieved individuals have a private right of action for the recovery of common law tort remedies, as well as attorneys' fees and costs. Notably, Senate Bill 121 allows for the recovery of attorneys' fees and costs to prevailing plaintiffs, not the prevailing party, so employers who successfully defend against such claims are not afforded this same remedy.

What This Means for New Jersey Employers

Although this law will not be retroactive and will only apply to agreements made on or after the effective date, New Jersey employers must keep in mind it will apply to renewals, modifications and amendments to existing agreements on or after the effective date.

Because this law will become effective immediately upon Governor Murphy's signature, New Jersey employers should commence review of their template employment agreements, separation agreements and settlement agreements for prohibited waivers of rights or remedies relating to claims of discrimination, retaliation or harassment and/or prohibited nondisclosure or confidentiality provisions, as such agreements will require modification the moment the governor signs this bill. Also, employers are advised to review their arbitration agreements, policies and programs, and consider additional provisions, like savings clauses or exclusions, to clarify and address issues associated with this legislation, once enacted. Upon the effective date of Senate Bill 121, all settlement agreements associated with claims of discrimination, retaliation or harassment must include the required language mentioned above.

We expect that this law will have a detrimental effect on the ability to settle cases. Employers may encounter increased litigation costs in defending claims of discrimination, retaliation and harassment, since settlements of defensible claims for economic reasons will no longer be protected from public disclosure after the governor signs this legislation into law.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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