Month: March, 2019

Governor Signs Bill Barring Certain Non-Disclosure and Waiver of Rights Provisions in Employment Contracts and Settlement Agreements

David J. Reilly

On March 18, 2019, Governor Phil Murphy signed into law an amendment to the New Jersey Law Against Discrimination (“LAD”) barring enforcement of certain non-disclosure provisions in employment contracts and settlement agreements, as well as employment contract provisions which waive “any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment . . . .”  Although this amendment was enacted largely in response to the recent wave of highly publicized cases in which prior victims of sexual harassers and abusers had signed non-disclosure agreements, it broadly covers all claims of workplace discrimination, retaliation and harassment.   The new law applies to “all contracts and agreements entered into, renewed, modified, or amended on or after” March 18, 2019.

A. Prohibition Against Non-Disclosure Provisions

Under the new amendment, any provision in an employment contract or settlement agreement which would conceal the “details relating to” a discrimination, retaliation or harassment claim under the LAD is unenforceable against any current or former employee, and contrary to public policy. The term “details,” however, is undefined, and therefore it is unclear whether an agreement to keep certain settlement terms confidential, such as the amount of payment, still would be enforceable under the new law. Unfortunately, there will be no definitive answer to this question until the term is clarified either through regulation or by the courts.

The new law does permit non-disclosure provisions in an employment contract or a settlement agreement to be enforced against an employer, unless the employee or former employee has publicly revealed “sufficient details of the claim so that the employer is reasonably identifiable . . . .” 

The new law also does not prohibit employers from requiring employees to sign non-competition agreements and agreements not to disclose non-public trade secrets, business plan and customer information. 

B. Notice Requirement

The new law requires that every settlement agreement resolving a workplace discrimination, retaliation or harassment claim include a bold, prominently placed notice providing that “[a]lthough 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 new law requires this notice even if the settlement agreement does not contain a non-disclosure provision.

C. Prohibition of Waivers of Rights or Remedies

The new law also prohibits provisions in any “employment contract” which prospectively waive any substantive or procedural rights or remedies relating to a discrimination, retaliation, or harassment claim.   This section of the law, however, does not apply to collective bargaining agreements. 

This section of the new law effectively prohibits agreements to arbitrate discrimination, retaliation and harassment claims, as well as agreements to waive jury trials, shorten statutory limitations periods, place caps on damages, and any other provisions relating to a substantive or procedural right or remedy under the LAD.   To the extent the new law prohibits agreements to arbitrate, however, it likely will be challenged in court as pre-empted by the Federal Arbitration Act (“FAA”).  Although we cannot predict the outcome of such a court challenge, courts generally have held that the FAA preempts statutes which purport to render agreements to arbitrate unenforceable. 

D. Meaning of “Employment Contract”

Neither this amendment nor any other part of the LAD defines an “employment contract.”  However, it is likely that courts will construe the term broadly to include any agreement between an employer and employee (excluding collective bargaining agreements) which sets forth terms and conditions of employment.  This could include, for example, an employer’s handbook or policies, which under some circumstances might be construed as an implied contract between the employer and employee.  Because the new law applies to “employment contracts” that are modified or amended after March 18, 2019, employers would be well-advised to obtain legal advice before making any changes to an employee handbook or employee policies.     

E. Potential Remedies Under the Amendment

The new law prohibits employers from enforcing or attempting to enforce the prohibited provisions against employees or former employees, who may be entitled to recover their attorney’s fees and costs incurred in defending against an action to enforce such a provision.  The law also provides that anyone claiming to be “aggrieved” by a violation of the new amendment may file a lawsuit, in which a prevailing plaintiff potentially would be entitled all of the remedies available under the LAD and common law, including attorneys’ fees and costs.   The new law is unclear, however, as to whether a current or former employee is “aggrieved” only when an employer seeks to enforce a prohibited provision, or whether a cause of action would arise from simply including such a provision in an employment contract or settlement agreement.

Compensation Obligations for Vocational Students and Unpaid Interns under the FLSA

Ryan Savercool

Young professionals enroll in vocational programs and internships to gain hands-on experience that is required for licensure or to obtain an advantage over their peers in the marketplace for coveted jobs.  These individuals, oftentimes students, “work” for no remuneration beyond academic credit or the incremental advancement towards completion of the program.  Recently, interns and vocational students have filed class action lawsuits contending that some employers and vocational schools have violated the Fair Labor Standards Act (“FLSA”) by failing to pay them as “employees.”  Thankfully, guidance on this issue has emerged from the federal courts and the Department of Labor (“DOL”). 

The FLSA requires employers to pay all “employees” a specified minimum wage and overtime of time and one-half for hours worked in excess of forty hours per week.  However, the FLSA defines “employee” somewhat vaguely as an “individual employed by an employer.”  29 U.S.C. § 203(e)(1).  Federal courts and the DOL have applied a “primary beneficiary” test to determine whether an intern or vocational student is an “employee” covered by the FLSA.  Recent decisions from the Second Circuit are illustrative of how courts resolve this issue.

In Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528, 536-37 (2d Cir. 2016), the Second Circuit adopted seven non-exhaustive factors to determine whether an intern is an “employee”:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee — and vice versa.

2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.

3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.

4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.

5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.

7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The court stressed that “[n]o one factor is dispositive and every factor need not point in the same direction for the court to conclude that the intern is not an employee entitled to the minimum wage. 

            More recently, in Velarde v. GW GJ, Inc., — F.3d — (2d Cir. Feb. 5, 2019), the Second Circuit extended the application of the primary beneficiary test to individuals enrolled in for-profit vocational schools, and held that a former cosmetology student was not entitled to unpaid wages from the for-profit vocational school he attended while in pursuit of his state cosmetology license.  The Second Circuit held that the primary beneficiary test “is equally suitable for distinguishing between ‘employees’ and ‘bona fide students’ of vocational schools or vocation-related programs (such as a training salon) where trainees acquire necessary skills by practicing their craft in a real-world setting.”  Id. at 10.  “Like interns,” the Court explained, “vocational students enter a course of study with ‘the expectation of receiving educational or vocational benefits that are not necessarily expected with all forms of employment.’”  Id. at 10-11 (quoting Glatt, 811 F.3d at 536). 

            In its opinion, the Velarde Court made the following observations:

  • “a vocational school is more likely to be found to ‘employ’ its students if it does not have a ‘formal education program’ with ‘integrated coursework,’ and instead exclusively requires students to perform tasks that are the same as those done by regularly compensated employees”;
  •  “a vocational school that runs a training program whose duration far exceeds ‘the period in which the program provides the student with beneficial learning’ may well be the primary beneficiary of that relationship.”
  • “state licensing requirements may often serve as strong evidence of the amount of practical training necessary for a student to become a competent professional, but will not always be determinative.”

            The Court rejected the plaintiff’s assertions that he should have been able to allocate his time differently among the various areas of study and that he should not have been required to do clerical and janitorial tasks:

That a vocational school does not provide the optimal learning experience for a student does not necessarily transform it into the primary beneficiary of the relationship. This is especially so where the school (as did the Academy here) provides a state-accredited course of vocational study, requires no more than the number of hours specified by the state, the state’s required numbers of hours are not challenged as unreasonable, and the school adequately prepares students for that state’s licensure exam . . . .

The Court concluded that“[t]his is not a case in which a business uses the façade of a vocational school to deceive students into working unexpectedly long hours without compensation, replacing the labor of its paid employees, or working hours well beyond the long-standing state requirements.”  Id. at 16-17.

            Accordingly, vocational schools and for-profit entities should familiarize themselves with the primary beneficiary test when designing academic programs. Courts determine compensation obligations under the FLSA on a case-by-case basis by analyzing the economic realities of the parties’ relationship.  In the vocational school setting, adherence to licensing requirements is probative evidence of the student’s status as the primary beneficiary of the relationship.