New York State Requires Employers To Modify Provisions in Separation and Settlement Agreements

On Nov. 17, 2023, Gov. Kathy Hochul signed into law amendments to New York’s General Obligations Law § 5-336 that prohibit the use of certain terms in release agreements. The amendments are principally intended to strengthen protections allowing workers to openly discuss any alleged harassment, discrimination and retaliation without fear of reprisal.

The earliest version of New York’s General Obligations Law § 5-336 (Section 5-336), which was one of the first laws to arise out of the #MeToo movement, barred employers from including confidentiality or nondisclosure provisions in any settlement, agreement or other resolution in cases of sexual harassment only, unless including such terms was the complainant’s preference. The law was later amended to apply to confidentiality and nondisclosure provisions in any agreement or other resolution of any claim involving harassment, discrimination or retaliation. Under the law, the complainant’s preference for confidentiality was required to be memorialized in a separate agreement, commonly known as a preference letter agreement, and the complainant had to be provided 21 days to consider the agreement and seven days thereafter to revoke their acceptance. Without strictly adhering to this framework, any confidentiality or nondisclosure provision would be unenforceable if it prohibited a complainant from discussing any alleged harassment, discrimination or retaliation.

The Recent Amendments

The new amendments to Section 5-336 broaden the scope of its reach and weaken the enforceability of confidentiality and nondisclosure provisions in release agreements.

First, complainants are now permitted to execute a preference letter agreement within the 21-day review period, rather than having to wait the entire 21-day period from the date they received the preference letter agreement to sign. Notably, the legislature did not modify or amend Section 5003-B of the New York Civil Practice Laws & Rules (CPLR), which still require a full 21-day waiting period before executing an agreement containing any term or condition that would prevent the disclosure of the underlying facts and circumstances to a claim, the factual foundation for which involves discrimination, harassment or retaliation. While this may appear contradictory, the CPLR provision applies only to matters and actions in court.

Second, the new amendments provide that a release of any claim, the factual foundation for which involves unlawful discrimination, harassment or retaliation, is invalid and unenforceable if the agreement resolving such claim includes provisions that require the complainant to do one of the following:

(a) Pay liquidated damages for violating a nondisclosure clause or nondisparagement clause

(b) Forfeit all or part of the consideration paid in exchange for executing the agreement for violating a nondisclosure or nondisparagement clause

(c) Make an affirmative statement or assertion that the complainant was not subject to any unlawful discrimination, harassment or retaliation

There are various ambiguities and undefined terms in this section of the law that, if read literally, can lead to surprising consequences. Most critically, it is not clear whether the law applies to any release that would bar claims of discrimination or if it applies only to releases that are entered into after a complainant has made a complaint of discrimination, harassment or retaliation. Employers need to consider whether to remove such provisions from release agreements with any employee or independent contractor going forward.

The consequences of these amendments are significant. If an employer includes the above prohibited provisions in a release agreement, the entire release may be invalidated. And if the complainant breaches a confidentiality or nondisparagement provision, there cannot be a forfeiture of consideration payable under the agreement, and the employer is instead left to seek an injunction or try to prove actual damages from such breach.

Finally, the new amendments add independent contractors to the list of workers who are entitled to protections under the law. Previously, the law extended to only employees or applicants. The amendments also add the attorney general to the list of individuals and entities that a complainant may contact regarding claims of discrimination, notwithstanding any nondisclosure provision to the contrary.

Conclusions

In light of these new amendments, employers should review their release agreements and determine how they should be modified going forward. The conservative approach when drafting any release agreement, regardless of whether the agreement follows an affirmative assertion of a claim, is to remove provisions requiring that the complainant pay liquidated damages or forfeit or repay consideration in the event of a breach of a nondisclosure or nondisparagement provision. Of course, depending on the circumstances, employers may decide to take a more nuanced approach to drafting a release agreement.

For questions or concerns regarding any of the issues raised in this alert, please contact a member of Kramer Levin’s Employment Law Department.