Prompted by revelations that President Trump, film mogul Harvey Weinstein, former USA Gymnastics team doctor Larry Nassar, and comedian Bill Cosby all entered into settlements that required the plaintiffs to sign nondisclosure agreements, the Legislature is considering S-121/A-1242, which has already passed the Senate by a 34-1 vote and is currently on second reading in the Assembly.
The bill would render unenforceable as against an employee any nondisclosure provision in an employment contract or settlement agreement “which has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment.” A committee amendment also provides that “If the employee publicly reveals sufficient details of the claim so that the employer is reasonably identifiable, then the non-disclosure provision shall also be unenforceable against the employer.” An employer who even attempts to enforce these prohibited contractual provisions shall be liable for the employee’s reasonable attorney fees and costs, and the employee is granted a private right of action in Superior Court.
Acts of discrimination and harassment, depending on the context, may implicate the public interest in eradicating predatory conduct from society, and the private interest of the private plaintiff in being compensated for personal harms that are wrongful but do not necessarily rise to the level of public harm. These two interests—the public interest and plaintiffs’ private interest—certainly overlap to a large degree, but they are not coterminous.
We would have little concern if this legislation were limited to addressing public wrongs, such as barring NDAs that prevent plaintiffs from reporting evidence of criminal conduct or other regulatory violations to relevant law enforcement or oversight agencies. Indeed, there is already a substantial body of law and statutory authority that invalidates attempts to prevent “whistleblowing,” and we imagine the courts would invalidate an NDA that reached this type of disclosure, if they have not done so already. Thus, current NDAs typically recite that reporting to EEOC, Department of Labor, NLRB or any other state or federal agency is not prohibited. The SEC also has very strict rules invalidating nondisclosure agreements with regard to misconduct within its jurisdiction. OPRA requires disclosure of settlement agreements by public entities, and thus a suit for breach of an NDA with a public entity is barred by public policy. Another possibility that the Legislature might consider is to require candidates for state elective office to waive any NDAs that they may have entered into in order to become a candidate.
This bill, however, would also invalidate NDAs that address predominantly private interests, in which disclosure would not be to law enforcement or a regulatory agency, but to the media or other private third party. There are many cases in which plaintiffs are fully able to negotiate settlement agreements, including a nondisclosure provision, that are actually in their best interests. We can envision situations in which the employee may wish to protect her own privacy through an appropriate nondisclosure agreement so that she may quietly receive a fair settlement that will compensate their harm but minimize rumors, gossip, and innuendo that might interfere with the rest of her career. Or the plaintiff may simply want to get the best possible deal for herself, in terms of recovery amount, time, and saving of further litigation costs. But eliminating all NDAs favoring the employer in discrimination and harassment cases will also unavoidably remove any bargaining incentive for the employer to enter into a nondisclosure agreement favoring the employee. The Legislature should not lightly override the freedom to negotiate a settlement that we normally give to all civil litigants.
In enacting rules of general application, the Legislature necessarily paints with a broad and sometimes unforgiving brush that does not always allow for nuance depending on individual circumstances. Blanket exclusions should be imposed only if the Legislature is sure that the evil it seeks to prevent so disproportionately outweighs any possible positive outcomes from the challenged behavior that it is willing to sacrifice the latter for the sake of certainty.
Not all cases present the lurid facts we have seen in recent headlines, and we question whether abridging the freedom of private contract in all civil discrimination and harassment actions necessarily works to the ineluctable benefit of the class of victims the Legislature is surely trying to protect. The Legislature should not compel all discrimination plaintiffs to sacrifice their own privacy, or the tangible premium for confidentiality that they would be able to extract from defendant employers, simply for an inchoate interest in public awareness of private conduct that does not rise to the level of a public wrong.
Of course, there are some nondisclosure agreements that are indeed overreaching and the result of coercive bargaining power. There are appropriate doctrines at common law, however, by which the courts can police such bargains depending on the specific facts presented. Depending on the circumstances, the doctrines of unconscionability, duress, mistake, undue influence, frustration of purpose, or misrepresentation, may be invoked. We encourage the courts to adapt those doctrines to contemporary realities and recognize the unequal bargaining power that so often favors employers over employees in such cases. But the benefit of leaving to the litigation process the task of addressing abusive nondisclosure agreements is that the courts can engage in the kind of case-by-case decision-making process that the Legislature cannot.
The bill would also invalidate a provision in any employment contract that purports to waive prospectively any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment, including any right or remedy under the Law Against Discrimination or any other statute or case law. This provision seems to us more consistent with a measure that falls within the legislative competency. Extracting such in futuro waiver of legal rights that might accrue under circumstances that have not yet occurred is a more obvious example of an inherently improper use of superior bargaining power—one that does not depend upon particular facts—that the Legislature can address through general legislation. (One caveat: state legislative attempts to invalidate waiver of jury trials through arbitration agreements may be preempted by the Federal Arbitration Act.)
We hope the Legislature gives some thought to the proper allocation of adjudication roles between itself and the courts, and recognizes that in most circumstances, the courts are better equipped to deal with individual abuses of the freedom to contract, and should avoid enacting an overbroad abrogation of that right through legislation.