Reminder to New York employers: Amendments to nondisclosure rules will require updates to separation and settlement agreements

During the height of the #MeToo movement, New York lawmakers passed a host of workplace-related legislation. This included adoption of Section 5-336 of the New York General Obligations Law, which governs the use of nondisclosure provisions in agreements resolving claims of discrimination, harassment, or retaliation. On November 17, 2023, Empire State legislators passed several key amendments (the “Amendment”) to the existing law, which took effect immediately.

By way of background, Section 5-336 was originally passed to protect nondisclosure provisions in agreements resolving claims of sexual harassment. Under Section 5-336 and prior to the Amendment, the law prohibited employers from including nondisclosure provisions in such agreements unless it was the employee’s preference and the employer complied with certain procedural requirements, including: (i) the inclusion of the provision is the employee-complainant’s preference; (ii) employee’s receipt of 21 days to consider the nondisclosure provision, a period that could not be shortened or waived (even if the employee wanted to); (iii) a 7-day revocation period; and (iv) employee’s preference for confidentiality memorialized in a separate written agreement.

Under the Amendment, employees who assert claims of discrimination, harassment, or retaliation in the pre-litigation context and receive a nondisclosure provision may, but are no longer required to, take the full 21 days to execute the agreement. In other words, the 21-day consideration period is no longer required and may now be waived.

The Amendment thus aligns New York law with the consideration and revocation period concepts set forth in the federal Age Discrimination in Employment Act. It is important to note, however, that the legislature did not change Section 5003-B of the New York Civil Practice Law & Rules, which applies to cases filed in court. In light of this, employers facing claims of discrimination, harassment, or retaliation in court must continue to provide a non-waivable 21-day consideration period to employees who are issued settlement agreements with nondisclosure provisions.

In addition, the Amendment contains the following critical updates:

• Extends to independent contractors. The preference agreement requirement now applies to release and settlement agreements with independent contractors who have asserted claims of discrimination, harassment, or retaliation.
• Agreements cannot prohibit certain rights. Agreements that restrict an employee, potential employee, or independent contractor from disclosing information related to any claim of discrimination must notify the individual that it does not prohibit them from speaking with law enforcement, the Equal Employment Opportunity Commission, the New York State Division of Human Rights, the New York Attorney General, a local commission on human rights, or an attorney retained by the individual.
• Agreements cannot contain certain affirmative statements. Employers are prohibited from including in a release agreement a requirement that the employee who has raised claims with a factual foundation relating to discrimination, harassment, or retaliation complete an affirmative statement or disclaimer stating that they were not subject to such conduct. In addition, release agreements containing or requiring any affirmative statements, assertions, or disclaimers by the employee, that the employee was, in fact, not subject to unlawful discrimination, will not be enforced.
• Liquidated damages. Employers are prohibited from including a liquidated damages or forfeiture provision where an employee has raised claims with a factual foundation relating to discrimination, harassment, or retaliation and the employee would be required to pay damages or forfeit consideration if they violate nondisclosure or non-disparagement provisions.

Employers should immediately update their separation and settlement agreements for compliance if they have not already done so. The law does not apply retroactively, so agreements adjusted prior to its effective date remain enforceable.

If you have any questions about the implications of this Amendment or if you would like assistance drafting or reviewing your agreements, Reed Smith’s experienced employment attorneys are available to help.