Employers Beware: Settling Discrimination Claims With Penalty Provisions Can Void a Release!
On an almost daily basis, New York employers settle employee discrimination, harassment and retaliation claims. The fundamental bargain in these settlement agreements is the employee’s promise that, in exchange for compensation, he or she releases claims against the employer. A new law puts those releases directly in the crosshairs.
In November 2023, New York Governor Kathy Hochul signed into law an amendment to New York General Obligations Law §5-336. The amendment prohibits employers who seek to resolve discrimination, retaliation or harassment claims, from including in the settlement or separation agreements certain prohibitions or penalties against the complainant (employee). Specifically, an employer may not include in the settlement agreement penalties that require the employee to do one of the following:
- Pay liquidated damages for violating a nondisclosure or nondisparagement clause;
- Forfeit all or part of the compensation paid in the settlement agreement for violating a nondisclosure or nondisparagement clause; or
- Require a statement or admission by the employee that he or she was not subject to unlawful discrimination, harassment or retaliation.
If an employer negotiates a settlement agreement that contains one of these three prohibited provisions, according to the new amendment, the release contained in the agreement will be deemed void and unenforceable. To be clear, the mere inclusion of any of the above provisions will render a release null and void, regardless of whether the employer ever tries to enforce any of the provisions.
The message being sent by the New York legislature is clear: Employers Beware. An employer that pays an employee to resolve discrimination-related claims and includes these prohibited provisions loses its all-important release.
Moving forward, New York companies must take careful steps to review separation and settlement agreements to ensure that they do not violate this new amendment.
If you have any questions regarding the information covered in this blog, please contact Daniel Hoffman, John Baranello, or your primary attorney at Moses Singer.
