Nondisclosure provisions and mandatory arbitration under fire in New Jersey

Employment Alert


With nearly unanimous support in both chambers, the New Jersey legislature has passed Senate Bill 121, signaling the Garden State's intent to step squarely into the #MeToo ring. If signed into law by Governor Phil Murphy, the legislation will significantly impact the tools available to employers to address claims of workplace discrimination, retaliation and harassment.

Beginning on the date it is passed, and applying to all contracts and agreements entered into, renewed, modified or amended after the effective date, the new law would usher in the following changes:

Restricting the use of nondisclosure agreements. The bill prohibits the use by employers of nondisclosure provisions in employment contracts or settlement agreements that have "the purpose or effect of concealing the details" of discrimination, retaliation or harassment claims. Specifically, employers would be barred from enforcing nondisclosure provisions against current or former employees, with such provisions deemed to be "against public policy." Employees, however, would be permitted to enforce nondisclosure provisions against employers unless "the employee publicly reveals sufficient details of the claim so that the employer is reasonably identifiable." The bill does not provide any guidance as to the nature and extent of public disclosures that would make an employer "reasonably identifiable."

The trend toward increasing transparency surrounding the settlement of sexual harassment claims in particular has been gaining traction in the wake of #MeToo. Other states, such as New York, have adopted similar measures, and we expect the trend to continue.

Notice requirements in settlement agreements. The bill requires that settlement agreements resolving discrimination, retaliation, or harassment claims contain a "bold, prominently placed notice" advising employees that, although the parties have agreed to keep the settlement and underlying facts confidential, the employee will lose the ability to enforce the nondisclosure provision against the employer if he or she publicly discloses details of the claim that render the employer reasonably identifiable. Therefore, an employee settling discrimination, retaliation or harassment claims will be placed on notice that if he or she publicly discloses details of the claims that make the employer reasonably identifiable, the employer will not be bound by the nondisclosure provision and may discuss the matter publicly.

Prohibiting prospective waivers (including mandatory arbitration agreements). Under the bill, prospective waivers of rights and remedies related to claims of discrimination, retaliation, or harassment contained in employment contracts would be unenforceable. Therefore, the bill would prohibit employers from requiring employees to sign mandatory arbitration agreements to the extent they encompass claims of discrimination, retaliation, or harassment.

We have seen similar legislative attacks on the use of pre-dispute mandatory arbitration agreements – particularly as they relate to claims of sexual harassment – in other states, such as New York. Restricting the use of mandatory arbitration agreements places these state legislative initiatives on a crash course with the Federal Arbitration Act, which codifies federal law's strong preference for the enforcement of arbitration agreements. We anticipate that these state laws prohibiting the use of certain arbitration agreements may be subject to challenge as being preempted by federal law.

New Jersey's Senate Bill 121 follows in the footsteps of other states, including New York, that have adopted similar measures relating to sexual harassment. New Jersey's iteration, however, contains some notable differences.

For example, New Jersey's restrictions on nondisclosure and prospective waivers reach beyond claims of sexual harassment – they apply to agreements related to any discrimination, retaliation, or harassment claims. In addition, with respect to nondisclosure restrictions, New York law provides that nondisclosure provisions may be enforceable if employees are given 21 days to consider (and an additional 7 days to revoke) a settlement agreement resolving sexual harassment claims that contains a nondisclosure provision. New Jersey's law does not contain any similar process to allow for the enforceability of nondisclosure clauses.

If signed into law, this bill will significantly impact New Jersey employers, who will have to review employment and settlement agreements to consider revising nondisclosure and arbitration provisions and to ensure compliance with applicable notice requirements. Employers should also understand that, if the bill is signed into law, simple renewals, amendments, or modifications to agreements signed prior to the bill’s enactment will need to address these new requirements as well.

Please contact the author or one of the following attorneys in the DLA Piper Employment Group for assistance or with any questions on these important issues:

Brian S. Kaplan

Joseph D. Guarino

Lisa M. Yennella-Granese

Joseph A. Piesco, Jr

Daniel Turinsky

Evan D. Parness

Garrett Kennedy