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New Jersey Governor Signs Controversial Bill Banning Mandatory Nondisclosure Clauses in Employment Contracts and Settlement Agreements

March 20, 2019
Caroline J. Berdzik

In response to the #MeToo movement, New Jersey Governor Phil Murphy signed a controversial bill on March 18, 2019 banning mandatory nondisclosure clauses in employment contracts and settlement agreements involving workplace discrimination, retaliation, and harassment claims.

Senate Bill 121 specifically renders any “employment contract” or “settlement agreement” that has the purpose or effect of concealing the details of a claim of “discrimination, retaliation, or harassment,” otherwise known as a nondisclosure agreement (NDA) to be deemed “against public policy and unenforceable” against a current or former employee as a party to the contract. However, if the employee publicly reveals sufficient details of the claim such that the employer is reasonably identifiable, then the nondisclosure provision is unenforceable against the employer. Bill 121 does not apply to collective bargaining agreements and it will be applied prospectively only.

Bill 121 further states that any provision in an employment contract that “waives substantive or procedural rights or remedies relating to claims of discrimination, retaliation, or harassment will be deemed against public policy and unenforceable.” Thus, the bill collides with both federal and New Jersey arbitration law, which liberally favor the enforcement of arbitration policies and waive certain rights or remedies such as a jury trial.

Interestingly, Bill 121 requires that every settlement agreement resolving a discrimination, retaliation, or harassment claim by an employee against an employer must include a “bold, prominently placed notice that although the parties may have agreed to keep the settlement and underlying facts confidential.” The agreement will also be unenforceable against the employer if the employee publicly reveals sufficient details of the claim such that the employer is reasonably identifiable.

The consequences for failing to comply with Bill 121 are significant. The bill states that any entity or person who “enforces or attempts to enforce a provision” deemed against public policy shall be liable for the employee’s reasonable attorneys’ fees and costs.” Thus, if an employer were to pursue a breach of an NDA against an employee in light of Bill 121, the employer would be responsible for the employees’ attorneys’ fees and costs in opposing that action.

The impact of Bill 121 certainly will be expansive. Confidentiality is often a key requirement for many employers and parties to bring claims to a successful resolution. By removing the incentive to resolve cases, particularly when a premium is paid for confidentiality, many parties may choose to litigate a case to conclusion instead. It is foreseeable that Bill 121 may actually lower settlement value, especially when there is no incentive for the employer to resolve cases early and the settlement could become public knowledge. This would result in protracted, expensive litigation.

Moreover, in the event that an employee reveals sufficient information to identify the employer, the nondisclosure provision becomes unenforceable against the employer. Thus, in the event the employer becomes reasonably identifiable, the gloves essentially come off and the employer is free to disclose arguably private information about the employee’s work performance and employment history. While this caveat provides employees with an opportunity to discuss issues in the workplace freely without publicly disparaging specific employers, it also leaves some employees vulnerable to privacy issues.

Regarding the waiver of any substantive or procedural right or remedy provision, any argument prohibiting an arbitration provision under Bill 121 could arguably be preempted by the Federal Arbitration Act, which preempts state law and favors arbitration when agreed upon by contracting parties. Only time will tell how the courts handle this conflict.

For more information about how Bill 121 might impact your business, contact: