United States: New York State Limits Remedies For Breach Of Nondisclosure Provisions In Settlement Agreements

New York State has banned liquidated damages and clawback provisions designed to protect confidentiality.

On November 17, 2023, New York Governor Kathy Hochul signed a law—which is effective immediately—banning clauses in agreements settling discrimination, retaliation, or harassment claims from requiring a complainant to pay liquidated damages or forfeit consideration for breaches of non-disparagement or confidentiality. If such clauses are included, the agreement's release would be unenforceable, but the employer may still remain bound by all other provisions, including the obligation to pay any agreed-upon settlement amount.

The new law, which amends N.Y. Gen. Obligations Law § 5-336, contains a few additional provisions. First, it prohibits agreements to settle discrimination, retaliation, or harassment claims from requiring an affirmative statement by the complainant that they were "not in fact subject to unlawful discrimination." Second, it amends N.Y. Gen. Obligations Law § 5-336 to state that employees must be given up to 21 days to consider an agreement to keep the facts and circumstances underlying discrimination claims confidential, but can sign in less than 21 days if they choose. The prior version of the law required that employees take the full 21 days to consider the agreement. Finally, the new law makes clear that it applies to independent contractors as well and provides that complainants must be free to speak to the attorney general under any agreement not to disclose factual information related to future claims of discrimination.

Going forward, employers should remove the banned provisions from their settlement agreements involving claims of discrimination, retaliation, or harassment, and should consider revising any agreements in progress. The law only applies to agreements settling discrimination, harassment. or retaliation claims, so no changes need to be made to standard separation agreements. Confidentiality provisions can be difficult to enforce, and one of the main functions of liquidated damages and clawback provisions often is to deter employees from breach. Employers should seek counsel on alternatives to these types of provisions.