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NJ Law Against Discrimination Affects Drafting and Enforcement of Some NDAs

We are often asked by our clients for non-disclosure and confidentiality agreements (often referred to as NDAs) in the transactional setting as well as in litigation settlement agreements – but what if the employment contract or settlement includes provisions regarding a discrimination claim?

Effective as of March 18, 2019 in New Jersey, lawyers must be wary of employment or settlement agreements that include any provision that “has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation or harassment.” If a provision is contained in a settlement agreement to which the New Jersey Law Against Discrimination (NJLAD) applies, it is unenforceable against the employee. If the employee chooses to reveal claim specifics in a way that the employer is “reasonably identifiable,” the employer may likewise reveal formerly confidential information. In fact, such settlement agreements must contain 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.”

The bill (2018 NJ S.B. 121 (NS), approved P.L.2019, c.39.) took effect immediately and applies “to all contracts and agreements entered into, renewed, modified, or amended on or after [March 18, 2019].”

The bill also prohibits employers from including provisions in any employment contract (though this term remains undefined) that waive substantive or procedural rights or remedies relating to a claim of discrimination, retaliation, or harassment under NJLAD or any other statute or case law.  It seems, then, that the legislature seeks to prohibit mandatory arbitration or jury trial waivers of such claims.  (Collective bargaining agreements, however, are expressly excluded.)

Following New York and others in this legislation, New Jersey has, according to some critics, gone further where the bill applies to all discrimination covered under NJLAD (e.g., not only sexual harassment and discrimination) and may have a chilling effect on settlements of such claims. Stated differently, critics feel employers may be less motivated to settle discrimination claims if such settlement cannot include a “gag order.” On the other hand, proponents believe the bill will meet its desired intent: to prevent victims of unlawful harassment from forced secrecy about their experiences – potentially perpetuating the alleged harm.  This newest law amending NJLAD follows the trend of legal responses to the #MeToo over the last year or so, in an effort of legislative bodies to respond to the changes in the employment space, spurred largely by such movement.

Notably, the amendment does not prohibit non-compete clauses or NDAs relating to sensitive business information.  The bill provides, “Notwithstanding any other provision of law to the contrary, this section shall not be construed to prohibit an employer from requiring an employee to sign an agreement: (1) in which the employee agrees not to enter into competition with the employer during or after employment; or  (2) in which the employee agrees not to disclose proprietary information, which includes only non-public trade secrets, business plan and customer information.”

The bill prohibits retaliatory action against any person “including but not limited to failure to hire, discharge, suspension, demotion, discrimination in the terms, conditions, or privileges of employment, or other adverse action” if that person refuses to execute any contract or agreement that the bill deems against public policy.  And, any person who tries to enforce any such unlawful provision will be liable to the employee for his/her legal fees.

Employers should review with in-house or outside counsel their form of employment contracts (and settlement agreements if forms are used), and – to be cautious – severance and other related contracts, to ensure compliance with the NJLAD amendments.

Jacklyn Fetbroyt is a founding member of  Kang Haggerty & Fetbroyt LLC and is currently the co-chair of the NAMWOLF Financial Services Litigation Practice Area Committee. Among other things, Jackie focuses on counseling companies and business owners through all stages of their ventures from conception to dissolution, assisting her business clients in all of their needs for maintenance and growth.