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US – New Jersey’s response to #MeToo: new law makes non-disclosure agreements for employee harassment and discrimination claims invalid

Written by
FordHarrison LLP, nationwide U.S. law firm with a singular focus on HR law.
A legislative amendment implemented in New Jersey means that any agreement in which employees agree to keep details of harassment and discrimination claims confidential cannot be enforced. The change also means employment contract clauses under which employees waive their rights to bring harassment and discrimination claims are now invalid.

Executive summary

Effective immediately, an amendment to New Jersey’s Law Against Discrimination (‘LAD’) signed into law on 18 March 2019, invalidates any provision in an employment agreement which ‘waives any substantive or procedural right or remedy’ under the State’s broad anti-discrimination laws. The amendment also invalidates confidentiality and non-disclosure provisions in any employment contract or settlement agreement.

In an apparent nod to Stormy Daniels and the #MeToo movement, the amendment prevents employers from enforcing confidentiality clauses designed to keep private the details of claims of discrimination, harassment, or retaliation. It also requires every settlement agreement involving an allegation of breach of the provisions of LAD to include a ‘bold, prominently placed notice’ explaining the employee cannot be punished for publicly revealing details of the claim.

Though parties to a LAD dispute remain free to agree among themselves to keep the settlement agreement (and the underlying facts) confidential, yesterday’s amendment renders such an agreement legally powerless. Though a similar law about sexual harassment claims was passed in New York last year, New Jersey’s amendment goes much further by applying to all claims of discrimination, harassment, and retaliation.

Agreements protecting an employer’s ‘proprietary information’ and employer non-compete agreements are not affected by the amendment.

The LAD amendment also creates a private right of action for ‘[a]ny person claiming to be aggrieved’ by a violation of the law, and provides two mechanisms for awarding legal fees to successful employees. In line with other claims under the LAD, any action for violation of the law as amended must be commenced within two years of the violation.

By making employment agreements which prospectively waive any substantive or procedural rights under the LAD or ‘any other statute or case law’ invalid, the amendment appears to invalidate employee jury waivers (where an employee waives the right to a jury trial in an employment dispute), class action waivers, and arbitration agreements. It is, however, unclear if such an outright ban on arbitration agreements violates the US Arbitration Act (‘FAA’), which is an act of Congress providing for judicial facilitation of private dispute resolution through arbitration. The LAD amendment appears to contradict this federal law, which strongly favours arbitration.

Indeed, the U.S. Supreme Court’s May 2017 decision in Kindred Nursing Centers LP v. Clark clarifies that states cannot promulgate ‘facially neutral’ laws (that is, laws which are not discriminatory on their face) that discriminate against arbitration agreements for any particular claim. A California measure similar to the New Jersey Amendment was vetoed by Governor Jerry Brown last year because it could not be reconciled with the FAA and the Kindred Nursing Centers decision.

The bottom line

Though the LAD amendment does not alter existing employment agreements and exempts collective bargaining agreements, employers with operations in New Jersey should review their employment agreements, confidentiality and non-disclosure provisions, arbitration agreements, and other documents which limit rights relating to LAD claims. Perhaps most important, employers in the midst of negotiating resolution of a LAD claim with an employee must ensure that any settlement agreement complies with the new law to avoid potential liability.