New York Enacts Greater Restrictions on Release Agreements Involving Claims of Discrimination, Harassment, or Retaliation

On November 17, 2023, the New York governor signed into law S4516, which amends Section 5-336 of the New York General Obligations Law to restrict certain terms from being included in release agreements involving claims of discrimination, harassment, or retaliation. The amendments went into effect immediately and apply to agreements entered into on or after the effective date.

Section 5-336 is one of the original #MeToo statutes. It was intended to limit the use of confidentiality agreements that prevent victims of sexual harassment from disclosing the harassing conduct in a way that might prevent future harassment. A year after its original passage, the New York legislature amended the statute to expand protections beyond sexual harassment to include other forms of discrimination. In S4516, the New York legislature further expanded Section 5-336 to cover not only claims involving discrimination, but also claims involving “discriminatory harassment and retaliation.”

Section 5-336 continues to generally prohibit employers from requiring a nondisclosure provision in a release agreement involving claims of discrimination, unless confidentiality is the employee’s preference, and the employee is given 21 days to consider the agreement and 7 days to revoke. While Section 5-336 previously required the employee to wait a full 21 days before signing a nondisclosure agreement, S4516 now provides that the 21-day consideration period is waivable (“the complainant shall have up to twenty-one days to consider [a confidentiality provision]”).

However, S4516 does not amend Section 5003-B of the New York Civil Practice Law & Rules (CPLR), which was enacted as part of the original #MeToo legislation, and which continues to require employees to wait the full 21 days before signing an agreement containing a nondisclosure provision that would prevent the disclosure of the underlying facts and circumstances of any discrimination claim. This means that the 21-day consideration period for nondisclosure provisions is waivable pre-litigation but is not waivable if the discrimination claim is filed in court, where the CPLR applies.

More significantly, S4516 adds that “no release of any claim, the factual foundation for which involves unlawful discrimination, including discriminatory harassment, or retaliation,” shall be enforceable if “the agreement resolving such claim” includes any of the following terms:

1. A liquidated damages provision for the employee’s violation of a nondisclosure clause or nondisparagement clause;

2. A forfeiture provision requiring the employee to forfeit all or part of the consideration for the agreement for violation of a nondisclosure clause or nondisparagement clause; or

3. An affirmative statement, assertion, or disclaimer by the employee that the employee was not subject to unlawful discrimination, harassment, or retaliation.

It is not entirely clear whether Section 5-336, as amended, applies to asserted claims that are being resolved by agreement, to standard separation agreements where no claim has been asserted, or to both. The existing Section 5-336(1)(a) places restrictions on “any settlement, agreement or other resolution of any claim,” which appears to apply only to resolutions of asserted claims, not to separation agreements in the normal course. In contrast, the newly added Section 5-336(3) states that “no release of any claim” shall be enforceable if “the agreement resolving such claim” includes the unlawful provisions above. The “no release of any claim” language is broader, which suggests that Section 5-336(3) may apply to both pre-claim and post-claim agreements. And the fact that the legislature did not amend the CPLR in S4516 further suggests that the legislature intended Section 5-336(3) to apply to all release agreements, while leaving CPLR Section 5003-B to apply only to release agreements that resolve discrimination claims in litigation or administrative proceedings.

On the other hand, Section 5-336(3) is, like earlier paragraphs in the statute, limited to agreements “resolving such claim[s],” which may indicate that it similarly applies to agreements resolving asserted claims and not to pre-claim release agreements. In addition, the stated justification for the amendments that the legislature provided with S4516¹ indicates that the bill “bars settlements of harassment and discrimination claims from including any terms or conditions” that require: (1) “a plaintiff to pay liquidated damages for violating an NDA,” (2) “the complainant to forfeit part or all of the consideration for violating the non-disclosure provisions,” or (3) the complainant “to sign an affirmative statement, assertion, or disclaimer stating that they were not subject to discrimination or retaliation.” This would seem to indicate the intent is to address only asserted claims of harassment, discrimination, or retaliation. But it is possible that a court could read the reference that the restriction applies to the “release of any claim” as being broader than just asserted claims. Thus, employers may elect to remove these terms from their pre-claim release agreements, such as those used in layoffs, until a court clarifies whether the requirement applies only to asserted claims.

In light of these new restrictions, employers should review their New York separation, severance, and settlement agreements to ensure compliance with S4516 and confirm the enforceability of those agreements. Because the statute indicates that this act is “effective immediately and shall apply to agreements entered on or after such date,” employers may need to address immediately, and possibly retract, amend, or discuss with opposing counsel, agreements currently under consideration by employees or claimants that may be signed after the effective date of November 17, 2023.

Footnotes

¹ The justification can be found here.