On November 17, 2023, New York Governor Kathy Hochul signed into law Senate Bill 4516 (the “Act”). The Act amends Section 5-336 of the New York General Obligations Law to (1) prohibit employers from including certain provisions or statements in agreements settling claims of discrimination, harassment, or retaliation, and (2) incorporate additional changes to confidentiality provisions in various agreements and policies.

The Act, which took effect immediately, applies to all relevant agreements (as discussed below) entered into on or after November 17, 2023.

A Walk Down the #MeToo Lane

In 2018, in the wake of the #MeToo movement, the New York State Legislature enacted Section 5-336[1] to limit the use of confidentiality clauses in certain employment-related release agreements, as we explained here. Section 5-336 banned non-disclosure clauses in settlements, agreements, or other resolutions involving sexual harassment claims unless confidentiality was the complainant’s and/or plaintiff’s (“employee’s”) preference. If it was indeed an employee’s preference to maintain confidentiality, then an employer was required to provide the employee with 21 days to consider the confidentiality provision, which must be in a separate agreement. Only after the 21-day period had lapsed could the employee sign the agreement. That, in turn, would trigger a seven-day revocation period. Only after that revocation period expired could the confidentiality language be included in the proposed resolution. This essentially required a 28-day waiting period before a confidentiality clause could be incorporated into the final proposed settlement agreement.

In 2019, Section 5-336[2] was amended again to broaden the scope of claims covered under the law from only sexual harassment claims to any claims of employment discrimination under the New York State Human Rights Law.

The recently signed Act further restricts provisions in release agreements. Most notably, the Act: (1) expands the scope of coverage under Section 5-336; (2) makes the 21-day waiting period waivable under Section 5-336; (3) renders a release agreement, whose factual foundation involves unlawful discrimination, unenforceable if certain provisions are included; and (4) requires changes to confidentiality provisions—both in release agreements and elsewhere. Each change is addressed in detail below.

Changes Under the Act

Broader Scope: Like the 2019 amendment, the Act broadens the scope of claims covered under Section 5-336. In addition to discrimination claims, the Act expressly identifies claims of harassment and retaliation (including discriminatory harassment or retaliation) as those claims for which an employer may not, unless an employee prefers, include confidentiality provisions in release agreements. Further, the Act broadens who is covered by the law to include employees, applicants, and, now, independent contractors.

Twenty-One Day Period: Section 5-336’s 21-day period draws from the Age Discrimination in Employment Act (ADEA), which permits employees to sign ADEA releases prior to the expiration of the 21-day period (and the signature kickstarts the clock for the revocation period). Like the ADEA, the 21-day period under Section 5-336 is now waivable. Employees may sign and accept the terms of the agreement to include the confidentiality provision within the 21-day period and, thus, no longer have to wait the full 21-day period to consider the terms (e.g., an employee may sign after three days). Once the employee has signed the agreement, the seven-day revocation period begins. Only after the seven-day period expires does the agreement to include the confidentiality provision take effect. However, because New York Civil Practice Law & Rules § 5003-b, and not the Act, governs non-disclosure agreements in settlements for claims of discrimination made after a lawsuit has been filed, plaintiff-employees who have filed a claim of discrimination in New York state court may not waive the 21-day waiting period.

Certain Terms Will Render Releases Unenforceable: Under the Act, employers may not include any of the following provisions in their release agreements for claims of discrimination, harassment, or retaliation:

1. Any clause that would penalize an employee’s violation of a non-disclosure or non-disparagement clause with forfeiture of any consideration paid as part of the agreement or payment of liquidated damages to the employer. This would include liquidated damages clauses or forfeiture/clawback provisions.
2. Any affirmative statement by the employee that states the employee was not subject to unlawful discrimination, including discriminatory harassment or retaliation.

A release agreement containing any such provisions will be unenforceable. 

Importantly, it is not clear whether this final subparagraph of Section 5-336 applies only in scenarios where the employer is aware of a complaint of harassment, discrimination, or retaliation (in which case the agreement is in settlement of such a claim), or if it could apply broadly to all separation agreements, even in a reduction in force or where there have been no claims raised pursuant to the Act. We await further guidance from the State, which has historically updated its Frequently Asked Questions page, for clarity.

Confidentiality Provisions: Section 5-336 has required that any contract provision that could prevent the disclosure of factual information relating to discrimination claims must include a notice of employee rights to speak with various government agencies. The Act amends this list to include the attorney general, in addition to various other entities (including the U.S. Equal Employment Opportunity Commission, state and local human rights agencies, and an employee’s own attorney).

What Employers Should Do Now

As we noted, the Act’s new restrictions apply to all relevant employment-related agreements entered into on or after November 17, 2023. Thus, employers with a New York workforce should consider taking the following immediate actions:

• Review release agreements, especially those containing non-disclosure, non-disparagement, and/or other confidentiality provisions that implicate any type of discrimination, harassment, or retaliation claim, to determine if they are consistent with the Act’s prohibitions and requirements.
• Revise relevant release agreement templates, forms, and related materials to:
  • remove liquidated damages and/or forfeiture/clawback provisions for violation of a non-disparagement or non-disclosure clause;
  • add language in settlement agreements permitting employees to waive the 21-day waiting period; and
  • delete any language that requires employees to affirmatively state that they have not been subject to unlawful discrimination, harassment, or retaliation.
• Revise any agreement containing a confidentiality provision related to discrimination, harassment, or retaliation claims—including, but not limited to, release agreements—to identify communications with an attorney general as a lawful disclosure in the “notice of employee rights” section.

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ENDNOTES

[1] The 2018 harassment law also enacted corresponding edits to New York Civil Practice Law & Rules (CPLR) § 5003-b, with similar edits in 2019. Importantly, the changes made to Section 5-336 in 2023 did not include similar edits to CPLR § 5003-b.

[2] As noted above, similar revisions were made in 2019 to CPLR § 5003-b to expand the scope beyond sexual harassment claims.