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New Jersey Legislature Moves To Ban Employee Waivers And Non-Disclosure Provisions In Employment Agreements

As yet another consequence of the #metoo movement, the New Jersey Legislature has passed legislation aimed at prohibiting employers from including certain waiver provisions and non-disclosure clauses routinely found in employment agreements. Senate Bill No. 121 (“the Bill”) , which is expected to be signed by signed by the Governor, will bring about a sea change for employers on several fronts.

The Ban on Waiver of Rights Under the LAD: Until now, employers were free to enter into agreements with employees to waive rights to jury trial and arbitrate all employment-related claims, including claims under the New Jersey Law Against Discrimination (“LAD”). In recent years New Jersey courts have declined to enforce individual arbitration agreements unless the employer agrees to preserve certain procedural and substantive rights, such as statutory rights to punitive damages and attorney fees, the full benefit of the statute of limitations period, and the absorption of the costs of arbitration by the employer. Nevertheless, properly crafted waivers and arbitration agreements were enforced by the courts despite the employee’s surrender the right to a jury trial in a judicial or arbitral forum.

Under the Bill, a provision “in any employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation or harassment shall be deemed against public policy and unenforceable.” Moreover, the Bill bars any prospective waiver of any right or remedy under the LAD or any other state statute. Whereas the rights conferred by the LAD include a jury trial, the Bill effectively prohibits an employer from entering into any agreement i) to waive a trial by jury of LAD claims in a judicial forum, or ii) to arbitrate LAD claims which necessarily dispenses with a jury. At the very least, employers may be required to exclude claims for discrimination, retaliation and harassment from arbitration agreements. No surprisingly, these mandates do not apply to collective bargaining agreements.

Employers should be mindful that this aspect of the Bill will assuredly face a legal challenge. The United State Supreme Court has repeatedly held that the Federal Arbitration Act reflects the national public policy favoring the arbitration of disputes, and therefore preempts any state laws prohibiting the use of arbitration agreements. Kindred Nursing Centers L.P. v. Clark, 127 S. Ct. 1471 (2017); AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 341 (2011). Should the Governor sign the Bill into law, it could be years before a pre-emption challenge is finally resolved by the courts. The challenge becomes whether to include arbitration provisions in employment agreements going forward. If arbitration is the employer’s desired forum for resolving disputes, the employer may want to consider including an arbitration provision with the understanding that it may not be enforced. However, the Bill states that an employer who moves to enforce an arbitration agreement deemed against public policy by the Bill shall be responsible for the employee’s attorney fees and costs. As a result, until such time that this provision of the Bill is deemed preempted by the Federal Arbitration Act, employers will remain hamstringed by these punitive provisions.

The Ban on Non-Disclosure Provisions in Employment Contracts and Settlement Agreements: The Bill also deems as against state public policy the use of non-disclosure provisions in any employment or settlement agreement that attempts to conceal the details relating to claims of discrimination, retaliation or harassment. The Bill mandates that any settlement agreement resolving such a claim shall include a “bold, prominently placed notice that although the parties have agreed to keep the settlement and underlying facts confidential, such provision in an agreement is unenforceable against the employer if the employee publicly reveals sufficient details of the claim so that the employer is reasonably identifiable.” As with the ban on waivers of rights, employers who seek to enforce such provisions are liable for the employee’s costs and attorney fees.

Affect on Pre-Existing Agreements: The Bill states that it will only apply to agreements entered into, renewed, modified, or amended after the effective date, suggesting that existing waiver and arbitration agreements and non-disclosure provisions in settlement agreements will be unaffected. However, those that are amended by the parties in any way or as is commonplace in employment contracts, are subject to automatic renewals, will then be subject to the legislation and these provisions will be unenforceable as against public policy.

Moreover, because the Bill expressly states that the inclusion of waiver of rights and confidentiality clauses in employment agreements are against public policy, there is a palpable argument that these clauses cannot be enforced even in those agreements that pre-existed the Bill, an issue that will be resolved in the courts.

No Retaliation: Employees subject to any form of retaliation, including failure to hire, discharge or other adverse action for refusing to sign an agreement with provisions deemed by the Bill as against public policy, shall have a cause of action against the employer for monetary damages, attorneys’ fees and costs.

Bottom Line: As a result of this new legislation, employers must reconsider the inclusion of waiver of jury trial or arbitration provisions in employment contracts, and whether to enforce such clauses in an existing agreement that is modified or renewed. As concerns arbitration agreements, they will likely be deemed unenforceable unless this aspect of the Bill is deemed pre-empted by the Federal Arbitration Act.

In addition, employers must fully consider the consequences of the Bill before settling discrimination claims. Regardless of whether a claim is viewed as meritorious or frivolous, employers are highly motivated to settle to avoid litigation costs and secure a binding agreement that the employee will not disclose the settlement or the allegations underlying the claim. Once the Bill is signed into law, employees are free to publicize settlements and the underlying factual allegations. Because the average person assumes that monetary settlements are an admission of liability, regardless of the employer’s settlement motivation, disclosure of the settlement has the potential of tarnishing the employers’ reputation as much as a jury verdict following trial. More than ever, employers must weigh the cost and risk of defending a claim at trial against the risk of the details of the dispute trending on Twitter.

This Bill further emphasizes the need for employers to proactively implement anti-discrimination and harassment policies and provide periodic harassment training to employees. Employers must also promptly investigate discrimination/harassment claims and take appropriate remedial steps to eliminate such conduct from the workplace. Undertaking these measures will not only minimize the occurrence of discriminatory/harassing conduct in the workplace, but will also strengthen the defense of discrimination suits initiated by employees.

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