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3 March 20236 minute read

New Jersey AI bias and non-disparagement laws would impose new requirements on employers

Bills introduced in the New Jersey Assembly would impose new obligations on employers related to the use of artificial intelligence (AI) in the hiring process and to non-disparagement provisions in certain employment and settlement agreements.

Below we summarize recent developments and steps for employers to consider now.

New Jersey AI bias law would require audits of hiring software discrimination

A bill introduced in the New Jersey Assembly late last year proposes to regulate the use of automated employment decision tools (ie, artificial intelligence software) in the hiring process. If signed into law, the bill would prohibit automated employment decision tools unless the tool (1) has been subjected to a bias audit within the last year, (2) will be subjected to an annual bias audit service at no additional cost to the purchaser of the tool and (3) includes a notice that the tool is subject to the provisions of the law. 

Additionally, any person or entity using an automated employment decision tool to screen candidates must notify each candidate that (1) the tool, which is subject to a bias audit, was used in connection with the candidate’s application and (2) the tool assessed the job qualifications or characteristics of the candidate. The proposed bill provides for civil penalties in the event of violations of not more than $500 for the first violation and between $500 and $1500 for each subsequent violation.

At present, the bill remains in committee: It was approved by the Assembly Labor Committee (and referred to the Science, Innovation and Technology Committee), and its Senate counterpart remains with the Senate Labor Committee.

The New Jersey bill is similar to a New York City law scheduled to take effect in April 2023, which prohibits covered employers and employment agencies from using an automated employment decision tool to screen a candidate or employee for an employment decision unless (1) the tool has been subject to a bias audit by an independent auditor no more than one year prior to the use of such tool, (2) information about the bias audit is publicly available and (3) certain notices have been provided to employees or job candidates who reside in the city of the use of the tool no less than ten business days before such use and the right of a candidate or employee to request an alternative selection process or accommodation.

Other states and localities are considering AI legislation. A bill pending in the New York legislature (Assembly Bill A567) largely tracks the New York City law, except that it refers to the bias audit as a “disparate impact analysis.” Additionally, although not as comprehensive as the New York or New Jersey bills (or the NYC law), the California Privacy Rights Act – which came into effect January 1 – provides employees and candidates with the right to opt-out of automated decision-making based on the processing of personal information.

At the federal level, on January 10, 2023, the EEOC issued a Draft Strategic Enforcement Plan (SEP) setting forth its top enforcement priorities, including “eliminating barriers in recruitment and hiring.” In particular, the SEP states that the EEOC will focus on “the use of automatic systems, including artificial intelligence or machine learning, to target advertisements, recruit applicants, or make or assist in hiring decisions where such systems intentionally exclude or adversely impact protected groups.” The EEOC is expected to issue a final version of the SEP following the public notice and comment period, which concluded on February 9, 2023.

Given the increasing focus on the use of AI in the workplace, employers are encouraged to audit their current and near-term systems based on current requirements and prepare for future regulation and enforcement.

New Jersey seeks to ban non-disparagement provisions

In response to the #MeToo Movement, New Jersey took action to address concerns surrounding the confidentiality of settlements involving harassment claims.  In 2019, the New Jersey Law Against Discrimination (NJLAD) was amended to provide, in relevant part, that employment contracts or settlement agreements that have “the purpose or effect of concealing the details relating to a claim of discrimination, retaliation or harassment” are against public policy and unenforceable against a current or former employee.

More recently, in June 2022, lawmakers introduced Senate Bill 2930 to amend the NJLAD once again — this time by adding non-disparagement provisions to the types of clauses that are unenforceable and against public policy in certain agreements.

The proposed amendment followed on the heels of the Appellate Division’s May 31, 2022 decision in Savage v Twp. of Neptune, holding that (i) the non-disparagement provision was enforceable, (ii) the legislature did not expressly state that such provisions were against public policy under the NJLAD and (iii) the non-disparagement provision did not have “the purpose or effect of barring plaintiff from discussing the details of the settlement agreement or her underlying LAD claims” as prohibited by the 2019 amendment to the NJLAD.  The Appellate Division reasoned, in part, that the legislature could have prohibited the enforcement of non-disparagement provisions, and that such omission was “noteworthy given that both non-disclosure and non-disparagement provisions are often included in employment agreements.”

In response, SB 2930 proposed to amend the NJLAD, in part, as follows:

2.a. A 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, including, but not limited to, a non-disclosure or non-disparagement provision, or other similar agreement (hereinafter referred to as a “non-disclosure or non-disparagement provision”) shall be deemed against public policy and unenforceable against a current or former employee (hereinafter referred to as an “employee”) who is a party to the contract or settlement. If the employee publicly reveals sufficient details of the claim so that the employer is reasonably identifiable, then the non-disclosure or non-disparagement provision shall also be unenforceable against the employer.

The bill further provided that it “clarifies that the current law on non-disclosure provisions also prohibits certain non-disparagement provisions in employment contracts.”  The Assembly version of the non-disparagement ban bill, AB 4521 – which is identical to SB 2930 – passed in October 2022.

We will continue to monitor these developments. In the meantime, if you have any questions regarding these or other employment law issues in New Jersey, please contact the authors or your DLA Piper relationship attorney. For more information about employment developments and trends, see our Top 10 expected trends for US employers to know in 2023.