June 5, 2019

The new trouble with nondisclosure agreements in New Jersey

Posted in Employment Law by Gene Killian |

I’ve been practicing law for 34 years. A lot of things have changed since I first entered the workforce. Over the past few years, for example, based on my completely unscientific and anecdotal study, it’s gotten a lot harder to settle with insurance companies and other business entities in certain contexts. And, if you get to the point of settlement, your adversaries are likely to insist upon a confidentiality agreement. One of the purposes, presumably, is to keep others from learning about your settlement and making additional trouble for the other side.

But now, in New Jersey, if you settle certain types of employment claims, confidentiality or nondisclosure agreements will be unenforceable.  You can read the full text of the new law by clicking here.

The new legislation, which took effect in March 2019, prohibits non-disclosure provisions in (A) employment contracts or (B) settlement agreements, if the provisions have the "purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment…" If the parties decide to use such a non-disclosure provision, it can be enforced against the employer, though, unless the employee "publicly reveals sufficient details of the claim so that the employer is reasonably identifiable." Every settlement agreement resolving a discrimination, retaliation, or harassment claim by an employee against an employer must include a "bold, prominently placed notice” essentially confirming that the agreement is unenforceable against the employee. So, from the management perspective, non-disclosure provisions will be pretty much useless.

The law also says that "[a] provision in any employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment shall be deemed against public policy and unenforceable," and "[n]o right or remedy under the 'Law Against Discrimination' or any other statute or case law shall be prospectively waived."

Readers of my blogs know that I’m not a huge fan of arbitration.  I find that it often fails to live up to its billing, because it can be expensive and time-consuming. But one question raised by the new law is:  What’s the effect on arbitration or jury-waiver clauses in employment agreements?  Do they waive “substantive or procedural rights,” making them unenforceable?  That’s not clear as of this writing, but I’m guessing that New Jersey courts may well say yes.

The statute also provides for a private right of action for employees, allowing not only compensatory damages, but also attorney's fees and costs. And retaliation is illegal  against any person who refuses to enter into an agreement or contract that contains a provision prohibited by the new legislation.

I’ve read several blog posts and articles arguing that this law isn’t well thought-out and may actually hurt the people it’s supposed to help, by lowering the settlements that would otherwise be recoverable for discrimination or harassment.  (Imagine that, a New Jersey law that wasn’t well thought-out!)  I’m not so sure. To use an analogy, California has prohibited noncompetition agreements for years, and that state’s economy seems to be functioning pretty well.  (Apropos of nothing, I thought I would point out here that the famous writer Saul Bellow, who attended my undergraduate alma mater, The University of Chicago, once wrote: “In Los Angeles all the loose objects in the country were collected, as if America had been tilted and everything that wasn't tightly screwed down had slid into Southern California.” )

In any event, instead of seeking to maximize recoveries, maybe the greater goal of our anti-discrimination laws should be to encourage equality and a harassment-free workplace. Legislation that brings light to dark places probably helps accomplish that goal, even if there are some grifters out there bringing frivolous suits.

An immediate practical takeaway for New Jersey employers is this:  Your standard employment agreements may contain jury waiver or arbitration clauses. Don’t terminate or refuse to hire people because they won’t sign contracts containing those provisions, or you could end up in hot water.