The New York legislature recently enacted significant amendments to New York General Obligations Law § 5-336, the law on non-disclosure agreements, which expand the restrictions on non-disclosure agreements. The amendments specifically relate to provisions aimed at keeping allegations of discriminatory harassment and retaliation confidential. These changes became effective on November 17, 2023. In addition, the 21-day waiting period for a complainant to consider a non-disclosure agreement before signing is now waivable by complainants for matters settled pre-litigation and the law now applies to claims of discriminatory harassment and/or retaliation brought by independent contractors as well. Employers and risk managers should take note of these changes and modify their settlement agreements accordingly.
Expanded Restrictions on Use of Nondisclosure Agreements
Recent changes to the law have significantly expanded the restrictions on non-disclosure agreements. New York previously prohibited employers from including a non-disclosure agreement, without the complainant's request for confidentiality, when the complainant's claim involved sexual harassment and/or discrimination. The law has now been amended to include claims of harassment and/or retaliation. In order to incorporate a non-disclosure agreement, an employer must ensure that the confidentiality provision is the complainant's preference; the confidentiality provision is set forth in writing; and the complainant has up to 21 days to consider such terms (which was previously non-waivable for pre-litigation settlements) and 7 days to revoke acceptance of the confidentiality agreement. Further, non-disclosure agreements for claims involving harassment, discrimination, and/or retaliation between an employer and any employee, potential employee, or independent contractor of the employer are void and unenforceable unless the provision notifies the employee, potential employee, or independent contractor that it does not prohibit the complainant from speaking with (1) law enforcement; (2) the equal employment opportunity commission; (3) the state division of human rights; (4) the attorney general; (5) a local commission on human rights; or (6) an attorney retained by the employee or potential employee.
Further, the amended law:
- Prohibits the use of a liquidated damages clause for violating a non-disclosure clause in settlement agreements alleging discrimination, harassment, or retaliation
- Bars the forfeiture of all or part of the consideration for violating a non-disclosure clause in agreements involving discrimination, harassment, or retaliation
- Forbids any affirmative statement, assertion, or disclaimer that the complainant was not subject to unlawful discrimination, harassment, or retaliation
Although at first glance the amendments may feel overly restrictive, it is important to note that they apply only to agreements involving allegations of discrimination, harassment, and/or retaliation. Standard non-disclosure agreements that do not involve these issues may still include confidentiality provisions and liquidated damage penalties for unauthorized disclosures.
21 Day Grace Period to Sign Disclosure Waivable
The original writing of § 5-336 required that a complainant be afforded a minimum of 21 days to consider a settlement agreement which contained a non-disclosure agreement and after signing the agreement, 7 additional days to revoke his or her acceptance of the agreement. The amended law now allows this consideration period to be waived by the complainant for pre-litigation matters. The 21-day consideration period for non-disclosure provisions is not waivable for discrimination, harassment, and/or retaliation claims filed in New York State courts where the Civil Practice Laws and Rules apply. Under the amendments, parties may now sign and finalize a non-disclosure agreement for a pre-litigation matter without any waiting period. The legislature reasoned that the waiting period unnecessarily dragged out the settlement process and often led to increased litigation.
Application to Independent Contractors
As part of the changes made to non-disclosure agreements in New York, independent contractors are now explicitly included in the law's provisions, in addition to employees and potential employees. Therefore, settlement agreements related to an independent contractor's claims based in discrimination, harassment, and/or retaliation are now subject to the amended non-disclosure laws.
Potential Fall Out
It is anticipated that recent changes in the law may make it more difficult for employers to "buy silence" from an employee that has brought claims against them for harassment, discrimination and/or retaliation and may allow harassers within companies to maintain anonymity. Further, employers may be more reluctant to settle claims of harassment, discrimination and/or retaliation if settlement agreements may not include confidentiality agreements. The law will likely result in more nuisance value cases going to a hearing or entering litigation which will drive up defense costs.
Important Takeaways for Employers & Risk Managers
- Although New York previously prohibited employers from including a non-disclosure agreement, without the complainant's request for confidentiality, when the complainant's claim involved sexual harassment and/or discrimination, the law regarding non-disclosure has now been amended to include claims of harassment and/or retaliation.
- Any settlement agreement will be unenforceable if it requires an employee to pay liquidated damages for violating a non-disclosure clause for claims related to discrimination, harassment and/or retaliation or which requires an employee to forfeit consideration for violation of such clause.
- All non-disclosure agreements should include a provision that notifies the employee, potential employee, or independent contractor that it does not prohibit the complainant from speaking with (1) law enforcement; (2) the equal employment opportunity commission; (3) the state division of human rights; (4) the attorney general; (5) a local commission on human rights; or (6) an attorney retained by the employee or potential employee.
- Complainants may now waive the 21-day consideration period for non-disclosure agreements in pre-litigation matters involving claims of discrimination, harassment and/or retaliation.
- Employers and risk managers working in New York should update settlement agreements to comply with the law as to employees and potential employees as well as independent contractors.
The attorneys at Wood Smith Henning & Berman are available to address your questions and concerns regarding these new changes in New York law. Please do not hesitate to reach out to a member of our team if we can provide further assistance.