With the stroke of a pen, Governor Phil Murphy has forever changed the dispute resolution process for employees and employers in New Jersey by rendering unenforceable any provision in an employment contract or settlement agreement that waives “any substantive or procedural right or remedy relating to a claim of discrimination, retaliation or harassment.” Born of the #metoo movement and touted by state Assemblywoman BettyLou DeCroce (R) as protecting “victims from being forced into silence, to allow them to share their stories and fight for justice if they want to do so[.],” the bill became law earlier this year amidst controversy and criticism as another “anti-business” measure by the state Legislature.

As of March 18, 2019, Senate Bill 121 amended the state's long-standing Law Against Discrimination (NJLAD) to prohibit any contractual provision that conceals the particulars of claims under the NJLAD. Specifically, under the newly amended law, any such agreement is now void as “against public policy and unenforceable against a current or former employee who is a party to the contract or settlement,” if the provision has “the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment.”

Additionally, pursuant to the new amendment, employees are now protected from retaliation under the NJLAD if they refuse to enter into a contract with a provision prohibited by the new law. Backing this up, the amendment further provides that employees have a private right of action for violation of the statute under common law tort theories and can recover reasonable attorney fees and costs. Notably, the new law applies to all existing and future agreements, with the exception of collective bargaining agreements. The law also preserves the enforceability of certain restrictive covenants, including non-competition agreements and provisions protecting confidential and proprietary information.

Critics of the new law point to potentially increased litigation costs and prolonged resolution of matters, and contend that the law ultimately works to the detriment of both employers and employees. Though not explicitly, it will effectively ban arbitration agreements in employment-related contracts, which will force all disputes related to discrimination, retaliation or harassment into court, where they will be subject to the full complement of rights, rules and procedures associated with the public litigation process. While court litigation eliminates many of the perceived disadvantages of the privacy of arbitration, the light of day does not always serve the best interests of the employees—which the new law is designed to protect. On top of that, banning all related non-disclosure agreements opens the door, under certain circumstances, to the details of a dispute resolution process being scrutinized.

There are certainly cases in which limiting an employer's ability to suppress information about the dispute resolution process benefits the employee, but there are many cases in which an employee would prefer that personal or professional “details” of a dispute remain shielded from public review. To be sure, the employee controls that disclosure, to a large extent, because the ban on non-disclosure does not treat employers and employees equally. Under the new law, an employer cannot enforce non-disclosure provisions against an employee, but—with one significant exception—employees can enforce non-disclosure against employers.

The exception to the employee's ability to enforce a non-disclosure agreement involves a situation where the employee voluntarily publicly discloses particulars of the settlement. Indeed, going forward, all settlement agreements between New Jersey employees and New Jersey employers must contain a bold, prominent notice provision stating that: “Although the parties may have agreed to keep the settlement and its underlying facts confidential, such a provision in an agreement is unenforceable against the employee if the employee publicly reveals sufficient details of a claim so that the employer is reasonably identifiable.”

What exactly constitutes “sufficient details” and “reasonably identifiable” remains to be seen. Also unsettled is the impact of this requirement on agreements, including arbitration agreements, that pre-date the new law.

Ironically, Governor Murphy's enactment of the law follows an incident from his own campaign which implicated non-disclosure agreements that he himself required his staffers to sign. In October 2018, a lawsuit filed by Katie Brown, a staffer from the governor's administration, alleged sexual assault against former staffer Al Alvarez. In connection with serving on Murphy's campaign, the governor's volunteer staffers were required to sign non-disclosure agreements that restricted them from publicly disclosing information “related to the plans, strategies, business, operations, or other affairs of the Transition or its affiliates, tangible or intangible, that is not generally intangible to the public.”

How this non-disclosure agreement impacted Ms. Brown's disclosure of details during the related investigation and litigation presented a point of contention in connection with any attempt to enforce similar agreements. Whether these particular non-disclosure agreements fall under the ambit of the new law is an example of the kind of questions with which lawyers in New Jersey must grapple: What constitutes a “claim” of discrimination, retaliation, or harassment under the new law? Will the law apply to volunteers or independent contractors? What “underlying facts” relate to the settlement such that they cannot be disclosed?

The future of the law as a whole remains in doubt as well. Bill S121 functionally prohibits arbitration agreements in the employment context. Will the law withstand a legal challenge on the basis that it is preempted by the Federal Arbitration Act (FAA), 9 U.S.C. §1, et seq.? The FAA requires courts to place arbitration agreements “on equal footing with all other contracts.” DIRECTV, Inc. v. Imburgia, 577 U.S. –––, –––, 136 S.Ct. 463, 465, 193 L.Ed.2d 365 (2015) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006)); see 9 U.S.C. § 2.

If S121 renders arbitration agreements inferior to other contracts in that they are now prohibited in the employment context related to certain types of claims, as described above, will a higher court find that it is preempted by the FAA? The U.S. Supreme Court's decision in Kindred Nursing Centers v. Clark, 2017 WL 2039160 (2017), suggests that preemption may be in the cards. In Kindred, the Kentucky Supreme Court refused to enforce arbitration agreements implicated by claims against a nursing home by relatives of patients who had died in the home. Id. at 3. The Supreme Court vacated the Kentucky high court's decision, ruling that: “The FAA thus preempts any state rule discriminating on its face against arbitration—for example, a 'law prohibit[ing] outright the arbitration of a particular type of claim.' And not only that: The Act also displaces any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.” S121 may well be one of those “rules.”

As such, the new law may, in practice, seem to raise more issues than it promises to resolve. Real questions remain as to whether: (1) any form of arbitration agreement will remain enforceable under the NJLAD; (2) the FAA will preempt this change to state law; and (3) contractual provisions limiting access to courts, such as jury waivers, will remain enforceable.

As a result of the new law, employers have some work to do. Existing contracts need to be reviewed for unenforceable provisions, appropriate amendments to contracts that violate the new law must be made, and future contracts cannot contain these unenforceable provisions. The bottom line is that employees and employers alike will now have to deal with the ramifications of no longer being able to simply agree to keep the nature and details of their resolution of NJLAD claims confidential.

Richard Scharlat is a partner at Dentons in New York, and a member of the Steering Committee for the firm's Employment and Labor practice. Brian Cousin is also a partner at the firm and the leader of its legacy global Employment and Labor practice as well as the ERISA and Benefits Litigation practice.