On March 18, 2019, New Jersey Governor Phil Murphy signed into law Senate Bill 121. The law has New Jersey joining several other states in limiting the use of nondisclosures in employment contracts. The law comes, in part, from the recent #MeToo movement and is an attempt to prevent employers from silencing victims of harassment, discrimination or sexual assault.
“Although many associate this new law with sexual harassment, the law expands beyond sexual harassment and covers any contract or settlement agreements related to a claim of discrimination, retaliation or harassment by a current or former employee,” says Joseph W. Fluehr, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC.
Smart Business spoke with Fluehr about the new law and how employers should proceed now that it’s been enacted.
What do businesses need to know about the law?
Importantly, the new law prohibits contracts or settlement agreements from waiving any substantive or procedural rights of an employee relating to any claim of discrimination, retaliation or harassment. Any nondisclosure provision in such agreements is now considered to be against public policy by the New Jersey legislature and, therefore, unenforceable by the employer. However, an employee may choose to enter into such an agreement and may enforce its provisions so long as the employee has not publicly disclosed sufficient details that make the employer reasonably identifiable.
Next, the law includes an anti-retaliation provision and makes anyone enforcing or attempting to enforce a provision that’s deemed to be against public policy and unenforceable liable for the employee’s reasonable attorney fees and costs. In such an instance, the employee may institute a civil action in the Superior Court of New Jersey within two years of the occurrence.
However, the law is not all-expansive, as its terms specifically carve out non-compete agreements and agreements prohibiting the disclosure of proprietary information, including trade secrets, business plans and customer information.
Finally, the law may be on shaky ground as it may face a preemption challenge as the terms also limit mandatory pre-dispute arbitration agreements. This is contrary to the Federal Arbitration Act, which favors enforcement of such agreements.
What is the law’s immediate impact?
Of immediate impact and importance is how businesses use confidentiality provisions in employment contracts and settlement agreements. Although these provisions are found to be against public policy, the specific portions of such agreements and the full effects of the law are not known due to the law’s ambiguity. Whether the law will prohibit keeping financial terms and the fact a settlement was reached from being disclosed is of great importance. Therefore, employers entering into these agreements or settlements should consult attorneys to strategize the best means of protecting themselves. Further, employers that operate in multiple states should be aware of choice-of-law provisions that choose New Jersey law to govern agreements.
What happens to employment contracts or settlement agreements that have these kinds of nondisclosure provisions?
The landscape of employment agreements in New Jersey has significantly changed. However, as the terms of the law are very broad, including key terms of the law left undefined, much is left up for interpretation. Therefore, employers should take a closer look at the terms of their agreements and their continued use of such nondisclosure provisions. Enforcement of such terms and provisions will be significantly penalized if the terms are restrictive against public policy. More importantly, employers will have to consider this new law when deciding whether to enter into separation or settlement agreements in the first place. The terms of those agreements, including monetary terms, may become public.
Employers should be wary of proceeding as they did before March 18, 2019. Employment attorneys should be consulted to review employer practices and agreements to avoid potential pitfalls established by this new law.
Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC
