Employment Litigation Roundup: May 2024

June 3, 2024

May 2024

NJ Supreme Court holds that non-disparagement provisions cannot prohibit disclosure of details relating to claims of discrimination, retaliation, or harassment

The New Jersey Supreme Court unanimously held that a non-disparagement clause in a sex discrimination settlement agreement was unenforceable as against public policy because it had the effect of concealing details relating to claims of discrimination, retaliation and harassment. The decision addresses an alleged ambiguity in a 2019 amendment to the New Jersey Law Against Discrimination (NJLAD), which provides in relevant part:

A provision in any employment contract or settlement agreement which has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment (hereinafter referred to as a “non-disclosure provision”) shall be deemed against public policy and unenforceable against a current or former employee.

As we previously covered, the employer in this case, a township, had sued the employee, a police officer, for breaching her non-disparagement clause in a televised news interview. The clause required the parties “not to make any statements … regarding the past behavior of the parties [that] would tend to disparage or impugn the reputation of any party.”

The trial court upheld the non-disparagement provision, holding that the NJLAD barred only non-disclosure and confidentiality agreements. The Appellate Division affirmed on this point. The NJ Supreme Court reversed, reasoning that the plain language of the statute contemplates non-disparagement provisions notwithstanding its use of the term “non-disclosure provision.” The Court also held that any statements the employee made related to alleged discrimination, retaliation and harassment, even if only indirectly related to her claims, were protected by the NJLAD.

S&K Take: This is an important decision for New Jersey employers. No longer can they rely on provisions in settlement or other agreements that would have the effect of preventing any employee from disclosing “details relating to a claim of discrimination, retaliation, or harassment,” broadly construed. The Court did note that “in theory” parties could narrowly draft a non-disparagement provision that would not run afoul of the NJLAD—for example by agreeing not to disclose details about “personal lives or matters unrelated to” claims of discrimination, retaliation, or harassment.

Employers are not required to provide religious accommodations that pose an unreasonable risk of litigation

Brownsburg Community School Corporation (“BCSC”), an Indiana public school, maintained a policy requiring teachers to call students by their preferred names and pronouns. A teacher objected to the policy on religious grounds and requested an accommodation to refer to all students by their last names only. BCSC initially granted the accommodation but revoked it after students and faculty complained. The teacher sued the school under Title VII for failure to accommodate his religious beliefs. BCSC moved for summary judgment on the grounds the accommodation would amount to an undue hardship.

A federal district court in Indiana agreed with BCSC, holding that the proposed accommodation imposed an undue hardship because (a) it actually and substantially harmed students and (b) exposed BCSC to an “unreasonable risk for substantial and disruptive litigation,” including for discrimination under Title IX, which prohibits sex-based discrimination in education programs that receive federal funding. The court credited BCSC’s argument, noting that “Title VII does not require an employer to grant a religious accommodation that would place it on the ‘razor’s edge’ of liability.”

S&K Take: Last year, in Groff v. DeJoy, the U.S. Supreme Court addressed what constitutes an “undue hardship” sufficient to deny a religious accommodation. For decades, the standard was whether a proposed accommodation imposed “more than a de minimis cost.” A unanimous Court reevaluated this precedent and held that employers must grant religious accommodations unless they “would result in substantial increased costs in relation to the conduct of its particular business.” Cases like BCSC’s are important to monitor because they will shape the contours of religious accommodation claims post-Groff.

Delaware Supreme Court to clarify the scope of forfeiture-for-competition decision in Cantor Fitzgerald v. Ainslie

As we previously reported, the Delaware Supreme Court’s decision in Cantor Fitzgerald v. Ainslie upheld a “forfeiture-for-competition” provision in a partnership agreement, holding that it was not subject to a review for “reasonableness” and that the partner’s voluntary withdrawal and principles of freedom of contract weighed in favor of enforcement. Facing another case with similar facts, the U.S. Court of Appeals for the Seventh Circuit recently certified questions to the Delaware Supreme Court to clarify the scope of this holding.

In LKQ Corporation v. Robert Rutledge, the Seventh Circuit reviewed a company’s bid to enforce a forfeiture-for-competition provision in a restricted stock award program governed by Delaware law. Its terms required the defendant, a former mid-level manager, to forfeit all proceeds from the sale of his stock awards after he joined a competitor within nine months after his separation from the company.

The Seventh Circuit highlighted “meaningful differences” between the facts before it and those at issue in Cantor Fitzgerald. In particular, the court observed that Cantor Fitzgerald invoked policy considerations raised by the Delaware Limited Partnership Act, while the forfeiture provision in LKQ Corp. is contained in an “ordinary corporate contract” and the employee was not a partner or executive represented by counsel.

Finding itself “unable to predict with confidence how broadly Delaware courts would apply Cantor Fitzgerald,” the Seventh Circuit certified the following questions to the Delaware Supreme Court:

(1) Whether Cantor Fitzgerald precludes reviewing forfeiture-for-competition provisions for reasonableness in circumstances outside the limited partnership context?

(2) If Cantor Fitzgerald does not apply in all other circumstances, what factors inform its application? For example, does it matter what type of agreement the forfeiture provision appears in, how sophisticated the parties are, whether the parties retained counsel to review the provision, whether the forfeiture involves a contingent payment or claw back, how far backward a claw back reaches, whether the employee quit or was involuntarily terminated, or whether the provision also entitled the company to injunctive relief?

S&K Take: The Delaware Supreme Court has accepted the Seventh Circuit’s questions. Its guidance is likely to clarify whether and to what extent Cantor Fitzgerald’s approval of forfeiture-for-competition provisions applies outside the context of limited partnerships and agreements between sophisticated parties. While forfeiture-for-competition provisions have traditionally faced less judicial scrutiny than ordinary non-competes, the Seventh Circuit’s decision is yet another example of increasing hostility toward restrictions on employee mobility. This comes on the heels of the FTC’s Non-Compete Rule, which, as we previously covered, would prohibit forfeiture-for-competition provisions if it goes into effect. We will be monitoring.