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

by David Reilly

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.