It’s Settled . . . Or Is It? NJ Appellate Division Rules The NJLAD Does Not Prohibit Non-Disparagement Clauses in Settlement Agreements

On May 31, 2022, in Savage v. Township of Neptune, the New Jersey Appellate Division partially upheld, and partially overturned, a trial court’s enforcement of a private settlement agreement, holding that although the settlement agreement’s non-disparagement clause was enforceable and not violative of the statutory prohibition against enforcing non-disclosure provisions in harassment/discrimination/retaliation cases, the employee’s allegedly disparaging statements did not actually violate the non-disparagement clause as written.

Facts

Christine Savage was a Sergeant with the Township of Neptune Police Department for over 20 years. In 2013, Savage sued alleging claims of sexual harassment, discrimination, hostile work environment, and retaliation for filing a charge with the U.S. Equal Employment Opportunity Commission. In May 2014, the parties settled Savage’s claims. The Settlement Agreement contained a non-disparagement provision.

In 2016, Savage filed new charges alleging continuing sex discrimination, harassment, retaliation, and aiding and abetting discrimination in violation of the New Jersey Law Against Discrimination (NJLAD). Savage alleged that Defendants violated the letter and spirit of the 2014 Settlement Agreement because three male police officers were promoted at the same time “thereby sending a message to the rank and file that male dominance of the police department would remain the status quo.”

On July 23, 2020, after three months of negotiations, the parties entered into a second Settlement Agreement and General Release (the Settlement Agreement) that included a negotiated, mutual non-disparagement provision. The mutual non-disparagement provision provided, in relevant part, that “[t]he parties agree not to make any statements, written or verbal, or cause or encourage others to make any statements, written or verbal regarding the past behavior of the parties, which statements would tend to disparage or impugn the reputation of any party. . . . The parties agree that non-disparagement is a material term of this Agreement and that in the event of a breach, the nonbreaching party may seek enforcement of the non-disparagement provision and damages for its breach . . . .” (emphasis in original).

In September 2020, Defendants filed a motion to enforce the Settlement Agreement, claiming that several days after Savage received her settlement, she gave an interview to NBC New York violating the non-disparagement provision. Savage opposed the motion arguing that the non-disparagement provision in the Settlement Agreement was against public policy and in violation of the NJLAD, as amended. Savage contended that the non-disparagement provision was unenforceable because it effectively “‘gagged” her from talking about her claims.

Trial Court Decision

The trial court ruled that the non-disparagement provision, unlike a non-disclosure or confidentiality provision, was enforceable under the NJLAD. The trial court concluded that if the Legislature had intended to include non-disparagement provisions in the statute, it would have done so. The trial court also found that because confidentiality agreements often benefitted only one side, the non-disparagement provision of Savage’s settlement agreement created “a mutual and reciprocal obligation” which protected both parties. In addition, because the non-disparagement clause was negotiated and agreed upon as a material term of the settlement, it was enforceable. The trial court also found that the statements made by Savage during her news interview were disparaging and therefore violated the non-disparagement provision.

Appellate Division Decision

The Appellate Division affirmed the decision of the trial court and held that the non-disparagement clause was enforceable. The Court found that the Legislature’s omission of non-disparagement provisions from the statute noteworthy and the Legislature’s failure to mention non-disparagement provisions in the legislative history and the language of the statute itself indicated an intent by the Legislature not to prohibit the enforcement of non-disparagement provisions in settlement agreements.

In what can only be described as a display of astute judicial gymnastics, the Appellate Division found a way to give each side a win. On the issue of whether Savage violated the now enforceable non-disparagement provision, the Appellate Division focused on the provision’s specific ban on only statements concerning “the past behavior of the parties.” The Appellate Division reasoned that although the non-disparagement provision was in fact enforceable, Savage’s comments about the continued oppression of women and the continuation of the “good ol’ boy system” did not actually violate the provision because they were “statements about present or future behavior, not comments about past behavior prohibited under the plain language of the agreement.” The Appellate Division held that the central issue was not whether the statements were disparaging, but rather whether “those statements violated the terms of the agreement” which, it found, was a “matter of law subject to [its] de novo review.” On that issue, the Court found in Savage’s favor. The Appellate Division did not provide any further guidance on determining what exactly constitutes disparagement in the post-settlement, employment context.

Bottom Line

While non-disparagement provisions do not generally fall within the NJLAD’s prohibition on the enforcement of non-disclosure provisions in settlement agreements with respect to claims of harassment, discrimination and/or retaliation, employers must tread carefully in how they draft, and seek to enforce, non-disparagement provisions. To the extent that such a provision could be construed as having been drafted, or enforced, with the purpose or effect of stifling an employee’s right to speak out about the details of their case, a right protected by the NJLAD, as amended, such a provision may be held unenforceable.

For more information regarding this decision and for guidance and strategy on how to draft and enforce non-disparagement provisions in employee Separation or Settlement Agreements, please contact John C. Petrella, Esq., lead Partner in the firm’s Employment Law & Litigation practice via email here or Dina M. Mastellone, Esq., lead Partner in the firm’s Human Resources, Counseling & Compliance practice via email here, or call 973.533.0777.