Interpreting New Jersey S121: Impacts on Arbitration Agreements & Non-Disclosure Agreements

In March of 2019, Governor Phil Murphy signed into law S121, an act that aims to protect workers by (1) seemingly invalidating any provision of an employment contract that mandates arbitration of claims of discrimination, retaliation or harassment; and (2) gutting the effectiveness of non-disclosure agreements in settlement agreements arising from such claims by making them non-enforceable against employees.

S121’s sweeping changes come in the wake of the #Metoo movement. Proponents of the law argue that, in particular, victims of workplace sexual harassment should not be forced to waive their right to litigate their claims in court by signing an arbitration agreement. Moreover, they contend victims of workplace sexual harassment should not be bound to silence via non-disclosure agreements.

However, S121 is very newly enacted and very broadly worded. As such, it’s important to take a careful and realistic look at how the law will likely impact employment claims.

What It Means For Arbitration Clauses.

S121 voids any part of an employment contract that requires an employee to waive “any substantive or procedural right or remedy relating to a claim of discrimination, retaliation or harassment.” Moreover, S121 prohibits an employer from requiring an employee to prospectively waive any right or remedy under the New Jersey Law Against Discrimination (the “LAD”) – the statute under which most New Jersey employment discrimination and retaliation claims are filed.

When you sign an employment contract containing an arbitration agreement, you waive your right to sue your employer in a court of law (i.e., to litigate your claims, possibly up to the point of a jury trial). Instead, you commit to resolving your claims through binding arbitration. Arbitration claims are not decided by a judge or jury, but by a neutral third-party arbitrator. What’s more, litigation involves a lengthy “discovery period”, during which the parties exchange and collect evidence by answering written questions, producing documents, and taking witness testimony under oath. In contrast, arbitration employs an expedited discovery process that is, generally speaking, less extensive. Very broadly, one of the main upsides of arbitration is that it moves faster than litigation and claims resolve more speedily. One of the downsides, however, is that arbitrators are sometimes inclined to “split the difference” between employers and employees when determining the amount to award for damages.

On its face, the plain language of S121 bans arbitration agreements, since these amount to waiving the right to litigate – a “substantive or procedural right or remedy” available under the LAD. But there’s a big problem: namely, a federal law called the Federal Arbitration Act (or “FAA”). The United States Supreme Court has found that arbitration agreements are generally enforceable under the FAA, even in disputes involving employment discrimination, retaliation and harassment. And under the legal doctrine of preemption, the FAA overrides S121.

Given the foregoing, both employers and employees are understandably in a state of confusion. At the present date, S121 likely means that New Jersey employers, out of an abundance of caution, will not include arbitration provisions in employment contracts later than March 19, 2019 (the date of the law’s enactment). However, if you do sign an arbitration agreement after this date, please know that you cannot be 100% certain at this point that it is unenforceable. Given that S121 conflicts directly with the FAA, we anticipate plenty of litigation arising over the validity of arbitration contracts signed after the law’s passage. The question will ultimately be decided by the courts.

What It Means For Non-Disclosure Agreements.

S121 also makes any provision of an employment contract or settlement agreement unenforceable against an employee, if it has the “purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment.”

Practically speaking, this language is aimed at the non-disclosure agreements, or “NDA’s”, that are routinely included in the settlement agreements that resolve employment disputes. Going forward from March 19, 2019, parties to an employment lawsuit may still agree to keep the terms of the settlement confidential. However, S121 makes these NDA provisions unenforceable against the employee.

Think this means you can broadcast how terribly you were treated by your employer? Think again. S121 also provides that the NDA provisions are unenforceable against the employer in the event that the employee reveals enough information to identify the employer. In that case, the employer is free to defend itself by disclosing information about the employee.

As an example, let’s say that Mary worked for a well-known big-box store called The Shoe Place. She was fired after she was sexually harassed by her boss and complained. She later filed a wrongful termination/sexual harassment claim against The Shoe Place, which settled out-of-court on April 1, 2019. As part of the settlement agreement, Mary and The Shoe Place signed an NDA. Subsequently, Mary wrote a news article about her #Metoo experience: “I was subjected to horrible sexual harassment while working for the largest footwear company on the East Coast. The head of HR fired me for speaking up.” Since Mary has essentially identified her former employer, The Shoe Place (assuming it’s informed of her breach of confidentiality) is free to release its own details regarding her employment. For instance, The Shoe Place might reveal that it contends Mary was fired for a string of unexcused absences.

Another catch is that, under S121, NDAs that require the parties to keep quiet regarding the fact that the claim settled, the settlement amount, and the “underlying facts” of the settlement, appear to be enforceable against either party. Yet confusingly, “underlying facts” could theoretically include the very details of the litigation which the employer wants to keep confidential. Again, we anticipate the true breadth of S121’s non-disclosure agreement protections will have to be decided in court.

New Jersey S121 Summarized

While S121 is obviously meant as a boon for employees, only time will tell if it has its intended effect. There will be legal challenges to clarify the act’s meaning and to challenge its very legitimacy.