NYS Enacts Important Requirements & Restrictions for Nondisclosure and Separation Agreements

Since 2019, when settling a claim involving discrimination, New York employers have been required to follow a so-called “preference agreement process” to obtain a non-disclosure agreement preventing disclosure of the underlying facts and circumstances of the claim or action.  On Friday, Governor Hochul signed legislation revising this process and, importantly, creating serious penalties for employers who include certain provisions in their agreements which penalize employees who speak about harassment, discrimination, or retaliation.  This law takes effect immediately. 

Certain Provisions Render Release Unenforceable

Most importantly for employers, this new legislation renders the release of claims unenforceable if the employer includes either of the following in an agreement:

(1)    An affirmative statement, assertion, or disclaimer that they were not subject to unlawful discrimination, harassment or retaliation; or

(2)    A requirement that the employee either has to pay liquidated damages OR forfeit all or part of the consideration in the agreement if they violate a nondisclosure or non-disparagement clause.

These provisions, particularly provisions relating to employers “clawing back” portions of the consideration in the event of a breach, are common in many agreements.  As this law goes into effect immediately and applies to all agreements entered into on or after November 17, employers should take prompt action to revise their settlement and separation agreements.

Updates to Preference Agreement Process

The legislation includes a few expansions to the prior requirements which employers needed to follow to obtain valid non-disclosure agreements.  For general non-disclosure agreements (not tied to the settlement of existing claims, but which would prevent the disclosure of facts related to a future claim), employers have been required to include a provision making clear that the employee, or potential employee, is not prohibited from speaking with law enforcement, the Equal Employment Opportunity Commission, the New York State Division of Human Rights, a local commission on human rights, or an attorney retained by the employee or potential employee. The legislation expands this requirement, adding the attorney general to this list and imposing this requirement on agreements with independent contractors.  

The legislation clarifies that employers are required to follow the preference agreement process not only when settling claims of discrimination, but also when settling claims of harassment and retaliation. However, in what many may view as a relief, the legislation also loosens the requirements around the preference agreement process.  Previously, employers were required to provide the terms and conditions of the non-disclosure agreement to the complainant, who would have twenty-one days to consider the terms.  This twenty-one-day period could not be shortened and only after that time could the complainant sign the preference agreement memorializing that confidentiality was the complainant’s preference.  The new legislation revises this requirement to say that the complainant “shall have up to twenty-one days” (emphasis added).  The seven-day revocation period, during which the complainant can revoke their signature on the preference agreement remains unchanged.

These are critical changes which New York employers must consider, particularly given the immediate nature of the legislation.  Employers who have questions about the new legislation, or who need assistance in reviewing or updating their separation agreement, should contact Amanda Baker, Kate Townley or any other attorney at the Firm.

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