New Jersey Governor Signs Bill Impacting Non-Disclosure Agreements in Harassment Settlements and Arbitration Provisions

Over a year after its initial introduction, and after enough time to draw speculation (and perhaps some dust) on Governor Murphy’s desk, the Governor has signed Bill S121 into law.  The primary function of the law, which passed the Senate in June of 2018 with a near-unanimous 34-1 vote, is to prohibit and render unenforceable non-disclosure agreements in employment contracts or settlement agreements that conceal details of discrimination, retaliation or harassment claims. Such clauses will now “be deemed against public policy and unenforceable.”  The law will take immediate effect for all agreements signed or modified after its signing. New Jersey now joins others states that have passed similar laws in response to the #MeToo movement.

Non-disclosure provisions under the new law would also be deemed unenforceable against the employer if the employee reveals sufficient details of the claim so as to make the employer “reasonably identifiable.” The law requires that such settlement agreements that resolve discrimination, retaliation or harassment claims contain a “bold, prominently placed notice” that describes when such a provision would become unenforceable against the employer. The final version of the law that was enacted includes language which specifically states that it shall not be construed to prohibit an employer from requiring certain restrictive covenants or non-disclosure agreement related to proprietary business information.

However, portions of the law seem to portend future litigation.  The bill includes a ban on waivers of a substantive or procedural right or remedy relating to claims of discrimination, retaliation, or harassment because such provisions are “against public policy and unenforceable,” and specifically states that no right or remedy under the New Jersey Law Against Discrimination shall be prospectively waived. This appears on its face to raise questions as to the enforceability of arbitration agreements for certain employment related claims. This specific issue was raised in opposition to the bill by the New Jersey Civil Justice Institute. Though the statutory language stops short of an outright ban on arbitration agreements for certain employment related claims, language that is a functional blanket ban on agreements to arbitrate will surely raise preemption issues with the Federal Arbitration Act.

The law provides for costs and attorneys’ fees to the prevailing plaintiff if an employer enforces or attempts to enforce a provision deemed against public policy, which include both the non-disclosure provisions as well as the waiver of a substantive or procedural right or remedy. It also contains protections from retaliation, such as an adverse employment action because an employee or prospective employee refuses to sign an agreement which contains a provision deemed against public policy.

Potential litigation aside, employers in New Jersey must now act swiftly to adjust their practices to conform with the new law. Given the recent Third Circuit decision musing about the consequences of the #MeToo movement on the Faragher-Ellerth defense, employers must keep up with the quickly changing requirements of addressing sexual harassment in the workplace.