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New Law Bars Certain Provisions in Employment Contracts and Settlement Agreements

This week, Governor Phil Murphy signed an amendment to the New Jersey Law Against Discrimination (“NJLAD”) adopted by the New Jersey legislature earlier this year. The amendment bars certain provisions in employment contracts and settlement agreements between employees and employers. 

First, the new legislation prohibits employment contracts from including any waiver of an employee’s substantive or procedural right or remedy relating to a discrimination, retaliation or harassment claim. The legislature’s rationale is that requiring an employee to submit to such a waiver is against public policy and, therefore, unenforceable. Likewise, an employment contract cannot contain a wholesale, prospective waiver of an employee’s right or remedy under the NJLAD or any other statute or case law.  These limitations do not extend to collective bargaining agreements.

Second, the law prohibits employment contracts and settlement agreements from containing a non-disclosure provision intended to conceal details about discrimination, retaliation or harassment claims asserted against an employer. This statutory prohibition is limited to the enforcement of contracts or settlement agreements against a current or former employee who is a party to the contract or settlement. 

There are several practical implications of this law for employers operating in New Jersey.

As written, the statute permits an employer to continue to include a non-disclosure provision in a settlement agreement and any separation and release agreement so long as the provision does not have the “purpose or effect of concealing the details” of the underlying discrimination, retaliation or harassment claim. The way the statute is written suggests that any non-disclosure obligation arising from such a provision remains in effect only so long as the employee wishes the factual details of his or her claim to remain confidential. Practically speaking, an employer can still include a non-disclosure provision in these types of agreements, but it cannot create an absolute bar for the employee’s disclosure. Disclosure is now within the employee’s discretion regardless of a non-disclosure provision. 

In the face of these new rules, employers might want to consider incorporating a caveat within any non-disclosure provision that it is not intended to preclude the parties from disclosing the details of the underlying claim(s). Such a provision might be enforceable since the employer did not intend to conceal all details of the underlying claim.  Further, the law permits the employer to require confidentiality regarding details of any settlement (i.e., payment amounts) as the text of the statute only prohibits the intentional concealment of the details relating to a claim

The law provides protection to both the employee and the employer. The employee retains the right of disclosure even in the face of a non-disclosure provision. Should he or she elect to keep the details of the claim confidential, a non-disclosure provision would be effective. Conversely, if the employee discloses details of his or her claim, then the employer can likewise disclose details of the claim. However, employer disclosure is only permissible if the information the employee disclosed is sufficient to render the employer “reasonably identifiable.” Employers should, therefore, take care to limit disclosure to only those situations when the employee has opened the door for such disclosure by publicly disclosing sufficient details that might allow third parties to identify the employer.

Importantly, the new law expressly requires every settlement agreement arising from a discrimination, retaliation or harassment claim asserted by an employee against an employer, whether former or current, to include “a bold, prominently placed notice 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.”

A key element of the statute is the use of “reasonably identifiable” as the trigger for employer disclosure. The exact meaning of this language is not well-defined. Disputes could, therefore, arise if an employer and employee interpret the language differently. A prudent employer might include guidance within the agreement as to what particular information, if publicly disclosed by the employee, would reasonably identify the employer (e.g., name, location, industry, or other discernable characteristics). The inclusion of such language in an agreement might prevent later disputes as to whether there was a meeting of the minds between the parties on this point, which could allow the employer to enforce the contractual provision should an employee challenge it in court. Employers might also consider including a non-disparagement clause in any settlement agreement, which if violated could invalidate the agreement and potentially provide the employer a legal remedy.

Finally, the law includes a fee-shifting provision. Any employer that attempts to enforce a provision deemed against public policy and unenforceable under this law, i.e., an employment contract containing a waiver of an employee’s right to a discrimination, retaliation, harassment or NJLAD claim or an improper non-disclosure provision, is liable for the employee’s reasonable attorney’s fees and costs.

Please feel free to contact a member of Connell Foley's Labor and Employment Group if you have any questions.

  • Partner

    Molly Kellett practices primarily in the areas of commercial litigation, professional liability and labor and employment law. She regularly defends professional firms and licensed professionals, including attorneys ...

  • Partner

    Michael Shadiack is the Chair of Connell Foley’s Labor and Employment Practice Group. Representing a broad spectrum of employers and management personnel in the private and public sectors, he provides litigation defense and ...

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