New York State Imposes Limitations on Penalties for Breaches of Agreements Settling Employment Disputes

By: Casey Katz Pearlman and Peter T. Shapiro

Provisions requiring payment of liquidated damages and other penalties for breach that have long been commonplace in agreements settling discrimination, retaliation, and harassment claims in New York State are now a thing of the past as a result of Governor Kathy Hochul’s signing of  Bill S4516, which amends requirements for non-disclosure and non-disparagement provisions in such settlements.

The new law, which applies to settlement agreements for matters involving discrimination, retaliation, and harassment entered into on or after November 17, 2023, amends New York General Obligations Law § 5-336. The amendment’s three major changes to the law are as follows:

1. Employers are prohibited from requiring a complainant to pay liquidated damages for violations of non-disclosure provisions in settlement and confidentiality agreements resolving disputes in which the employee or applicant claimed discrimination, harassment, or retaliation.
2. Employers are prohibited from requiring the forfeiture of some or all of the consideration received by the complainant under the settlement agreement in the event the complainant violates a non-disclosure provision.
3. Settlement agreements for disputes involving discrimination, retaliation, and harassment are prohibited from including an affirmative statement by the complainant that they were not subjected to discrimination or retaliation.

In addition to the changes provided above, the new law eliminates the previous requirement that a complainant be provided 21 days to consider confidentiality provisions for a discrimination, retaliation, or harassment claim before finalizing the agreement. Now, complainants must be provided “up to 21 days” to consider the agreement, but may enter into the agreement before the 21 days expire. Note, however, the complainant must still be provided with seven days to revoke their assent to the confidentiality provisions. Note, however, that this Bill did not amend Section 5003-B of the New York Civil Practice Law & Rules, which requires employees to wait 21 days before signing an agreement that contains a nondisclosure provision. Because the CPLR was not amended, the 21-day consideration period for nondisclosure provisions is only waivable pre-litigation, but not if the discrimination claim is filed in court.

These new provisions apply to agreements entered into with independent contractors as well as employees. In this regard, the new law expands the protections regarding disclosure of factual information relating to future claims of discrimination against employers. Prior to the amendment of § 5-336, agreements between an employer and prospective employee to keep future claims of discrimination confidential were unenforceable unless the employee was notified of their right to speak with law enforcement, administrative agencies, or an attorney. That protection has been extended to cover agreements entered into between employers and independent contractors.

New York employers must now scrutinize the agreements they use to resolve disputes with employees, independent contractors and applicants who have alleged discrimination, harassment, or retaliation to ensure those agreement do not contain provisions that run afoul of the amended law.

Attorneys in Lewis Brisbois’ Labor & Employment group are available to advise employers on these and other issues.