Court Says Law Voids Nondisparagement Clause in Settlement Agreement

Takeaway: Many states and the federal government have imposed laws barring or limiting confidentiality agreements in the settlement of sexual harassment claims—laws that are being interpreted broadly.

A law meant to prevent the silencing of sexual harassment plaintiffs in settlements was broadly interpreted by the New Jersey Supreme Court to void a nondisparagement clause in a settlement agreement.

The plaintiff began her career as a police officer with the Neptune Township Police Department in 1998. In December 2013, she filed a lawsuit against the department, the Township of Neptune, and others for sexual harassment, sex discrimination, and retaliation, contrary to the New Jersey Law Against Discrimination (LAD). The parties entered into a settlement agreement in 2014. The plaintiff filed a second action in April 2016 against many of the same defendants, alleging that they had violated the settlement agreement and engaged in continuing and intensified sex discrimination, harassment, and retaliation.

In 2019, New Jersey amended the LAD to state that a provision in a settlement agreement that has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment shall be deemed against public policy and unenforceable.

The parties entered into another settlement agreement in July 2020. Paragraph 10 of that agreement required that the parties agree not to make or cause others to make any statements regarding the past behavior of the parties that would tend to disparage or impugn the reputation of any party. This nondisparagement provision extended to statements, written or verbal, to the news media; radio; television; government offices or police departments; or members of the public.

In August 2020, a television news story aired about the case that contained an interview with the plaintiff. The defendants contended that the plaintiff violated the nondisparagement provision of the settlement agreement during the interview both through comments she made, such as “You abused me for eight years,” and comments by the interviewer, who said the plaintiff “says the harassment retaliation intensified with bogus disciplinary charges.”

The defendants filed a motion to enforce the second settlement agreement. The trial court granted the motion, finding that the 2019 LAD amendment barred only nondisclosure and confidentiality agreements, and that the plaintiff instead violated a nondisparagement clause. The appellate division affirmed in part and reversed in part and denied the plaintiff’s motion for fees and costs, but allowed a small amount of fees and costs to the defendants. The plaintiff appealed to the New Jersey Supreme Court.

The high court considered whether a nondisparagement provision in the settlement agreement can stop the parties from revealing details related to claims of discrimination, retaliation, or harassment. The lower appellate court ruled that the statute’s plain language applied only to nondisclosure provisions but not to nondisparagement provisions.

However, the LAD amendment stated that a settlement agreement term that has the “purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment” was against public policy and unenforceable. The Supreme Court interpreted the LAD as remedial legislation that must be liberally construed. Its overarching purpose was to eradicate discrimination in society.

While the court found that a nondisparagement clause could in theory be allowed under the LAD with regard to matters unrelated to discrimination, retaliation, or harassment claims, it would have to be narrowly drawn to ensure that details of these claims could be revealed publicly. That distinction was not observed in the township’s settlement with the plaintiff.

The court further found that the statute was enacted in the wake of the #MeToo movement to protect individuals who suffer sexual harassment, retaliation, and discrimination from being silenced by settlement agreements and employment contracts. Thus, the legislative history supported applying it to nondisparagement clauses that relate to such claims.

Therefore, the New Jersey Supreme Court voided the nondisparagement clause of the plaintiff’s settlement agreement. It remanded the case to the trial court to allow the plaintiff to apply for reasonable attorney fees and costs consistent with the LAD.

Savage v. Township of Neptune, N.J., No. 087229 (May 7, 2024).

Jeffrey Rhodes is an attorney with McInroy, Rigby & Rhodes LLP in Arlington, Va.