Bag the Gag Provision: New Jersey Is the Latest State to Restrict Non-disclosure Agreements in SettlementsYou finally settled that tough discrimination or harassment claim. Now you just need to ink the settlement agreement, and obviously it will include a standard non-disclosure clause to prevent your claimant from ever talking about the events or settlement amount ever again – right? Well, depending on the state you are in, not so fast. The #MeToo movement and attention on non-disclosure agreements in the wake of the President Trump-Stormy Daniels story, has led several states – New Jersey being the latest – to prohibit non-disclosure agreements (NDAs).

New Jersey’s Law

New Jersey’s law states that NDAs with “the details relating to a discrimination, retaliation, or harassment claim” are unenforceable as against public policy. The law goes beyond other states’ laws in that it is not limited to only sexual harassment, assault, or sex discrimination claims, but prohibits NDAs about any and all discrimination, retaliation, or harassment complaints.  The statute extends to the underlying circumstances that gave rise to the claim along with the settlement or separation agreement.

There are two exceptions to the New Jersey statute: (1) Noncompetition agreements are allowed, and (2) NDAs that prohibit disclosure of proprietary information, including trade secrets, business plans, and customer information, are permitted. Violating the NDA limitation could result in the employer paying the employee’s attorney’s fees and costs in a subsequent enforcement action.  The law provides a private right of action and specifically prohibits retaliation against employees who refuse to enter into an NDA that would violate the limitation.

Other States’ Laws

New Jersey is not the only state to pass such NDA restrictions. Others include:

  • New York prohibits confidentiality clauses in settlement agreements for sexual harassment claims, unless the complainant consents after being given 21 days to consider such terms (which some say makes the new prohibition meaningless). New York also prohibits mandatory arbitration clauses for sexual harassment claims in employment agreements.
  • California likewise prohibits NDAs in settlements for cases involving sexual assault, sexual harassment, and workplace harassment or discrimination based on sex. California’s law went into effect January 1, 2019, and does allow confidentiality for the settlement amount.
  • Maryland’s new state law that went into effect in October 2018 focuses more on public disclosure. In Maryland, employers with 50 or more employees must disclose the number of settlements made after a sexual harassment allegation, the number of settled allegations of sexual harassment against the same employee, and the number of settlements of sexual harassment complaints that included a non-disclosure provision. This information must be provided to the Maryland Commission on Civil Rights and will be publicly available.
  • Tennessee prohibits employers from requiring an employee or prospective employee to sign or renew a non-disclosure agreement regarding sexual harassment in the workplace as a condition of employment, for any NDA executed or renewed after May 15, 2018.


So Can You Have a NDA or Not?

Almost every employer or defendant who settles a civil action (whether in litigation or prior to litigation) wants a confidentiality provision for a host of reasons. Proponents of these prohibitions contend that NDAs can protect a serial abuser or harasser from discovery without ever fixing any underlying problem. Last year Congress amended the tax bill to make any settlement or payment related to sexual harassment or abuse that was subject to an NDA, or any attorney’s fees related to such payment, not taxable – an amendment that was described in one of our previous posts. Barring non-disclosure agreements, however, may have the chilling effect of not allowing a claimant to settle if the alleged offender cannot have the allegations or settlement terms designated as confidential.

Depending on where you are settling a case, employers should certainly check state limitations on confidentiality and NDAs. With New Jersey now joining the states with such prohibitions, others may follow. If, as an employer, a state limitation is in play you need to weigh the inability to get confidentiality as part of the decision-making process to settle. What was once an assumed and essential clause to any settlement agreement may not be in the future.