Effective Immediately – New Jersey Restricts the Use of Certain Arbitration and Nondisclosure Provisions for Discrimination, Retaliation, and Harassment Claims

On March 18, 2019, Governor Phil Murphy signed Senate Bill 121 into law.  The new law prohibits the use of arbitration clauses and jury waivers that relate to claims of discrimination, retaliation, and harassment in employment contracts.  Additionally, the law prohibits employers from enforcing nondisclosure provisions that relate to any claims of discrimination, retaliation, or harassment within employment contracts and settlement agreements.  The law took effect immediately and applies to all agreements entered into, renewed, or modified on or after March 18, 2019.

The law explicitly states that any provision within an “employment contract” (which is undefined as noted below) 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.”  As a result, any “employment contract” that requires an employee to waive his or her right to a jury or arbitrate a claim of discrimination, retaliation, or harassment is void as a matter of law.  Significantly, the law does not define “employment contract” thereby leaving this language up for interpretation by courts (i.e., plaintiffs’ attorneys can argue that “employment contract” also refers to settlement and severance agreements).  Employers are anticipated to challenge this provision as being preempted by the Federal Arbitration Act.  Notably, the aforementioned provision does not apply to employees that are subject to collective bargaining agreements.

Moreover, certain nondisclosure provisions are now deemed unenforceable against current or former employees.  A nondisclosure provision that is subject to the new law is defined as “[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[.]”  Despite the fact that the law deems these nondisclosure provisions unenforceable, and although not entirely clear, it appears that the law still allows employees and employers to enter into agreements containing such provisions if that is the parties’ preference.  Notably, however, every settlement agreement with an applicable nondisclosure provision must “include a bold, prominently placed notice that although the parties may have agreed to keep the settlement and underlying facts confidential, such a 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.”

Therefore, employees and employers may still choose to insert nondisclosure provisions into settlement agreements relating to discrimination, retaliation, and harassment claims, but employees are now permitted to disregard these provisions if they so choose.  The law provides a remedy to employers that find themselves in that predicament by releasing the employers from their nondisclosure obligations under the agreement so long as the employee publicly reveals enough information that the employer is “reasonably identifiable.”  As such, the new law renders any mandatory nondisclosure provisions wholly unenforceable.

In addition, the law contains an anti-retaliation provision, which prohibits employers from retaliating against an employee that does not want to enter into an agreement with an applicable nondisclosure provision.  The law also provides for the award of an employee’s reasonable attorneys’ fees and costs if an employer attempts to enforce a nondisclosure provision that is subject to the law.

Finally, the law also explicitly states that an individual, who is not subject to a collective bargaining agreement, cannot prospectively waive any of his or her rights or potential remedies under the New Jersey Law Against Discrimination (“LAD”) or “any other statute or case law[.]”

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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