Q: I heard New York amended the law on nondisclosure provisions in employee settlement agreements. What do I need to know?
A: New York has long imposed burdensome requirements on employers who want to include confidentiality provisions in settlement agreements resolving claims of discrimination, harassment, or retaliation. New York recently amended those requirements, effective November 17. While the amendments lessen the burden on employers in one respect, they increase the burden in several other respects. Violation of the new requirements will result in the invalidation of the employee’s release. As such, it is critical for employers to understand and comply with these new requirements.
Under the revised law, if the factual foundation for a claim involves discrimination, harassment, or retaliation, the settlement agreement cannot require liquidated damages or forfeiture of all or part of the consideration for a violation of a nondisclosure or nondisparagement clause. Including these categories of damages is not only prohibited in New York, but will invalidate the release of the underlying harassment, discrimination, or retaliation claim(s). In the absence of these two categories of damages, employers must prove actual damages, which can be difficult.
The amendment also prohibits employers from including a statement that the employee was not subjected to unlawful discrimination, harassment, or retaliation, in settlement agreements. As with liquidated damages and forfeiture provisions, the inclusion of such a statement invalidates the release of the underlying claim(s).
Finally, in positive news, the amendments remove the requirement that an employee must have a full 21 days to consider a confidentiality provision in an agreement that resolves claims of harassment, discrimination, or retaliation. Historically, whether a claim was pre-litigation or in litigation, in order to include a confidentiality provision, employers had to give employees 21 days to consider the provision and seven days to revoke it. Unlike the consideration period required to release a claim of age discrimination under the federal Age Discrimination in Employment Act (ADEA), which could be waived by signing the agreement earlier, New York required the parties to wait the full 21 days. This lengthy timeline made it difficult to timely resolve claims while including a confidentiality provision in the agreement. Under the recent amendment, the 21-day consideration period is now waivable for pre-litigation claims, meaning that employees must be given 21 days to consider a confidentiality provision, but they can sign the agreement earlier if they wish. The amendment does not affect the consideration period for claims in litigation (which is governed by a different New York statute) — confidentiality provisions for those claims must still include a full 21 days.
To ensure compliance with these changes, employers should work with counsel to review and revise their separation agreement templates for New York employees.