NJ Enacts Controversial Law Outlawing NDAs in Discrimination and Harassment Settlements

Labor and Employment Law Alert

On March 18, 2019, New Jersey Gov. Phil Murphy signed a controversial bill banning mandatory nondisclosure clauses in settlement agreements involving workplace discrimination, harassment and retaliation claims. Additionally, the new law outlaws any form of jury waiver in employment agreements, which could include arbitration.

The new law contains two important features.  First, it bans any provision in any “employment contract or settlement agreement which has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation or harassment,” in other words, a non-disclosure provision.  Although the law states that the parties may agree to a confidentiality provision if they choose, it does not prevent employees from breaking that promise at any time in the future, although employers remain bound by the confidentiality provision unless “the employee publicly reveals sufficient details of the claim so that the employer is reasonably identifiable,” in which case the employer may disclose relevant facts about the matter but may not sue for breach of contract.  In fact, the law requires that every settlement agreement of a harassment, discrimination or retaliation claim include a bold, prominent 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.”

In other words, from an employer’s perspective, an NDA is worthless.

Second, the new law bars provisions in “employment contracts” which waive any right relating to discrimination, harassment or retaliation; no right or remedy under the New Jersey Law Against Discrimination (NJLAD) may be prospectively waived.  The law does not define the phrase “employment contract,” so expect plaintiff’s attorneys to argue that the jury waiver prohibition applies to almost everything – employment, severance, separation or settlement agreements – thus rendering private settlement of employment claims impossible.  We, along with many others, think that this provision will be preempted by the Federal Arbitration Act.

Fortunately, the law specifically carves-out an employer’s right to enter into non-competition and confidentiality agreements as to the employer’s proprietary information, which would be defined as to only include “non-public trade secrets, business plan and customer information.” Although the Bill does not specifically address non-solicitation agreements, we believe that such agreements would be carved-out as well.

The new law does not apply to currently existing contracts but takes effect immediately and applies  to all contracts and agreements entered into, renewed, modified, or amended on or after March 19, 2019.

Bottom Line:   We believe that this new law will result in fewer out-of-court settlements and longer and more expensive litigation.  This is a shame, not only for employers, but for employees as well, many of whom would also prefer to resolve claims, quickly and quietly, without having to experience lengthy and very expensive trials in the New Jersey court system.  Further, while we think the provision banning arbitration will be preempted by the Federal Arbitration Act, a New Jersey trial court may be unwilling to make that call, leaving it to the Appellate Division or the N.J. Supreme Court, making that entire process unwieldy and incredibly costly.