August 24, 2020
On August 18, 2020, the New Jersey Supreme Court issued its decision in Skuse v. Pfizer, Inc., concerning employees’ arbitration of claims against their employers. Reversing an intermediate appellate court, the Supreme Court upheld an employer’s arbitration policy that it had disseminated through email and that deemed an employee to have assented to arbitrate any employment claims by continuing to work for the employer for a certain period.
The employer, Pfizer, sent a series of two emails to its employees, including plaintiff Amy Skuse. The first included an arbitration agreement that contained a clause advising employees that if they continued working for sixty days after receipt of the policy, they will have been “deemed to have consented to, ratified and accepted” the agreement, whether or not they affirmatively acknowledged the agreement.
In the second email sent the next day, Pfizer sent its employees a “training” module called “Mutual Arbitration and Class Waiver Agreement and Acknowledgement,” that was an “activity” to be completed within two months. That module consisted of four slides, one of which similarly stated that even if the employee does not acknowledge the arbitration agreement, the employee will be “deemed to have consented to, ratified and accepted” the agreement by continuing to work for sixty (60) days after receipt of the policy. At the end of the slide was button that said: “CLICK HERE to acknowledge,” and the final slide thanked the employee for “reviewing” the agreement and allowed the employee to exit the “course.”
Skuse received both emails and completed the “training” module and was terminated just over sixty days later after refusing to get vaccinated against corporate policy. The foregoing was found sufficient to form an agreement to arbitrate.
First, the Court held that the arbitration agreement itself and attendant communications clearly informed Skuse that she would waive her right to sue in court if she continued her employment for sixty days. It premised its holding on the general rule of contract law that “conduct can constitute contractual assent.” The Court pointed to the language of the agreement advising her that she was deemed to consent by continued employment for sixty days—with no express acknowledgment of the agreement by the employee required.
Second, the Court found that email transmittal of the arbitration agreement was sufficient and appropriate. Nothing in the emails concealed the agreement or understated its importance. Interestingly, the Court did express disapproval of Pfizer’s decision to label the slideshow a “training” module, because “training” was not the most accurate terminology to describe what was occurring. That misnomer was, nevertheless, not grounds to invalidate the arbitration agreement, given the “content and tone” of Pfizer’s communications.
Lastly, the Court rejected the argument that the “CLICK HERE to acknowledge” button—as opposed to “to agree”—was insufficient, because Skuse had assented to the arbitration agreement by way of “Pfizer’s designated method of assent -- her continued employment for an additional sixty days” after receipt of the agreement. In other words, whether she clicked the acknowledgement button was effectively irrelevant. It was just another reminder that regardless, her consent to arbitrate was by her conduct of remaining employed for sixty days.
Justice Albin Lays Groundwork for Future Challenges to Arbitration Agreements
Justice Barry Albin, the author of the Court’s landmark—though oft-debated— 2014 decision in Atalese v. U.S. Legal Services Group, L.P., concurred in the judgment. However, he expressed his view that the Court would soon have to confront the “more profound question” of whether employment arbitration agreements are contracts of adhesion contrary to the fundamental constitutional right of a civil jury trial and, therefore, unconscionable and unenforceable. He observed that Skuse had not raised that issue. In other words, Justice Albin laid the groundwork for future employee-plaintiffs to challenge their arbitration agreements on that more fundamental ground, such that the issue may be brought before the Court in the not-so-distant future.
The Chief Justice’s Dissent
Chief Justice Stuart Rabner dissented. He could not find “clear and unmistakable” proof—the standard used in the Court’s previous arbitration decisions—that Skuse had assented or agreed to the arbitration provision. Neither the clickable “acknowledge” button nor Pfizer’s “one-sided declaration that consent would be deemed by default, met that standard,” according to the Chief Justice. It was his position that an employer cannot unilaterally declare an employee’s agreement to waive rights because, as with any other contract, “one side cannot simply declare that the other agrees.” He believed that Pfizer’s unilateral declaration of an employee’s assent was an attempt to bypass basic contractual principles.
The Chief Justice also pointed out that, while the majority’s decision critiqued Pfizer’s language used in their communications, the fact that the Court nevertheless upheld the agreement would “usher in a new day for arbitration agreements.” More precisely, he posited that, going forward, no employers will ask their employees to expressly agree to arbitration, but instead, will simply ask employees to acknowledge their receipt of arbitration policies and advise that they are deemed to consent by “continuing to show up for work.”
Four Key Takeaways from Skuse
What is the big picture takeaway from the Skuse decision? At least in the employment context:
It isn’t hard to believe that the Chief Justice’s intuition will come to fruition—and quickly. We may soon see the extinction of employers expressly seeking their employees’ agreement to arbitrate claims. To be sure, Justice Albin’s concurrence paves the way for future, more fundamental challenges to industry-wide employment arbitration agreements.
However, it’s hard to envision a majority of this Court essentially reversing course and declaring unconscionable and unenforceable what it just recently found enforceable. The probable confirmation of Fabiana Pierre-Louis as the newest Justice of the Court will likely not be enough to chart a new course. She will take the seat of retiring Justice Walter Timpone, who was not in the four-Justice majority in Skuse.
January 30, 2020
On January 21, 2020, New Jersey Governor Phil Murphy signed into law what appears to be first of its kind state legislation regulating arbitration organizations, such as the American Arbitration Association (AAA) and JAMS. On its face, the Act (S1490) is directed at “consumer arbitration,” meaning an arbitration involving consumer disputes involving goods and services, wherein arbitration is compelled by what is essentially a contract of adhesion. Indeed, the first three sections of the Act clearly seek to level the playing field for consumers, including a prohibition on financial conflicts of interest and fee-shifting, and fee waivers for indigent consumers. Yet, it is Section 4 of the Act mandating publication of data that may have the most wide-ranging, long-term impact on arbitration not just in New Jersey, but across the country.
The Mandate of Section 4
Section 4 of the Act requires that an arbitration organization that administers fifty or more consumer arbitrations each year publish quarterly and make publicly available certain information “regarding each consumer arbitration within the preceding five years.” That information required to be publicly available includes, but is not limited to:
Section 4 further requires publication of data showing whether the consumer had legal counsel, the name of the arbitrator and fee collected in the arbitration, and how many times the business was previously a party to arbitration or mediation administered by the arbitration organizations. This Section is also notable for what it does not require: publication of the consumer’s identity.
The Implications of Section 4
Section 4 has several implications and, at the same time, gives rise to several questions.
Organizations like AAA and JAMS now must publish the above information for “each consumer arbitration.” Based on the Act’s definitions, a “consumer arbitration” encompasses disputes between a business and consumer who signed a standard contract written solely by the business to obtain “any goods and services primarily for personal, family, or household purposes,” including financial and healthcare services and real property. That definition is expansive, but is largely in line with the definition of consumer arbitration in AAA Consumer Arbitration Rule 1.
Notably, the Act would seem to require publication of the listed information not solely for consumer arbitrations that occurred in New Jersey or involved New Jersey-based parties. Instead, the Act appears to force arbitration organizations operating in New Jersey to publish the information for each “consumer arbitration” no matter where the arbitration was conducted or who was involved. Thus, the Act appears to have the effect of requiring arbitration organizations to collect and publish the required information for consumer arbitrations across the country, potentially numbering in the thousands. It is not hard to imagine a future challenge to the facial scope of the Act.
Perhaps most conspicuous is the Act’s de facto prohibition on confidentiality concerning the disposition of consumer arbitrations. The public will now be entitled to see several material aspects of each and every arbitration, most notably the name of the business, and nature and amount of the award or relief granted. While each consumer’s name will not be published, the Act clearly lifts the veil of confidentiality often associated with private arbitration. In fact, JAMS Rule 26 requires JAMS and the arbitrator to “maintain the confidential nature of the Arbitration proceeding and the Award,” except as “otherwise required by law.” Certainly, the Act now requires non-confidentiality of the award (at least the amount and relief). While AAA Consumer Arbitration Rule 43(c) does allow AAA to publish awards, it requires redaction of the parties’ names absent party consent. Under the Act, of course, the name of the business party will be known.
In this same vein, Section 4’s publication requirements would seem to nullify any attempt by the parties to agree to the confidentiality of, for example, the arbitration award. Suffice it to say, the Act largely wipes away confidentiality associated with consumer arbitration dispositions—at least as far as businesses are concerned.
Last, but certainly not least, despite purporting only to target defined “consumer arbitration,” Section 4 contains curious language invoking employment disputes. Subsection 2 requires publication of the type of dispute involved, including “employment.” Indeed, it goes on to specify that in an “arbitration involving employment,” the published data must specify employees’ annual wage range. It is difficult, if not impossible, to envision a scenario in which a “consumer arbitration” as defined is simultaneously an employment dispute. This begs the question of whether—wittingly or unwittingly—Subsection 2 roped employment arbitration into the publication requirement, thereby similarly eliminating certain confidentiality. However, given the structure of Section 4, wherein qualification as a “consumer arbitration” is a condition precedent to requiring publication of information, arbitration organizations likely will confine publication of information strictly to consumer arbitrations.
The Act takes effect May 1, 2020, and applies only to consumer arbitrations commenced thereafter. Therefore, we likely will not see the full implications of the Act, including Section 4, until much farther into the future. Nonetheless, qualifying businesses that utilize arbitration or are contemplating utilizing arbitration in their form contracts with consumers should now begin considering the impact of, among other things, the publication of arbitration results mandated by Section 4. Relatedly, it remains to be seen which option for dissemination each arbitration organization selects: a searchable online database or hard copy. Based on arbitration organization’s larger business interests, it seems likely that non-electronic publications will be preferred.
December 6, 2019
On December 3, 2019, Mandelbaum Barrett PC obtained another significant victory in its fight to protect doctors and other healthcare providers from being unfairly removed by UnitedHealthcare (“UHC”) from its dual Medicare and Medicaid Community Health Plan (The “Plan”).
“An emergency arbitrator in an American Arbitration Association (“AAA”) hearing enjoined and restrained UHC from taking any action to terminate or not renew our client-physician’s contract pending a final award by a permanent arbitrator, according to Steven Adler, lead trial counsel from Mandelbaum Barrett in Roseland, New Jersey. “In addition, the arbitrator ordered UHC to treat our client like all other active providers under the Plan. Specifically, UHC was enjoined from telling patients that our client is not accepting patients or would be removed from the Plan,” according to Adler.
Testimony during the hearing confirmed that the appeal panels UHC hand-selects to review its decisions terminating health care providers simply rubber-stamp UHC’s actions without considering whether there is any legitimate basis for the terminations and non-renewals. “This opens the door for all health care providers who are being removed by UHC to prove that they were denied a fair procedure and must be reinstated,” Adler stated. Mohamed Nabulsi, the Chair of Mandelbaum Barrett’s Health Care Group, and Adler, Co-Chair of the Firm’s Litigation Department, are handling the case.
September 24, 2019
Last Friday, new legislation known as the Forced Arbitration Injustice Repeal Act (the FAIR Act), HR 1423, was passed in the US House of Representatives. There is also a companion Senate bill, S. 610. The new legislation is aimed at giving consumers, employees, patients and those whose civil rights allegedly were violated the right to file suit in Court by invalidating any pre-dispute arbitration agreement. The FAIR Act would amend the Federal Arbitration Act to prohibit any “pre-dispute arbitration agreement or pre-dispute joint-action (class action) waiver” for any employment, consumer, antitrust or civil rights dispute. This law would overturn United States Supreme Court decisions allowing such pre-dispute agreements, including Epic Systems Corp. v. Lewis, which allows pre-dispute class action waivers.The new legislation would guaranty workers the right to go to court, which could have devastating impact on employers because it would expose them to public scrutiny and allow claims to be decided by juries rather than arbitrators. The new legislation would invalidate previously signed arbitration agreements if the dispute arises after the legislation becomes law. There is also similar legislation pending, including the Restoring Justice for Workers Act, which also would prohibit mandatory, pre-dispute arbitration in the employment context. These proposed laws must also be approved by the Republican controlled Senate, which is probably unlikely.
August 1, 2019
The New Jersey Supreme Court recently granted certification in Skuse v. Pfizer, Inc., 457 N.J. Super. 539 (App. Div. 2019), an Appellate Division case that addresses the appropriate manner in which employers should seek an employee’s agreement to arbitrate, when consent is sought through electronic means, such as online modules. The Court’s view on this issue will shed light on how employers can achieve legally enforceable arbitration agreements through the use of digital techniques.
Skuse examined two issues: (1) the enforceability of an arbitration agreement that was transmitted to employees through a mandatory online “training module”; and (2) whether an employee who did not acknowledge his/her agreement to be bound by the arbitration agreement was nevertheless bound by “default” because she continued to work for the company for more than sixty days after receiving the arbitration agreement. On the second issue, the Skuse panel expressly acknowledged that it was diverging from the view taken by a sister panel in a previous published case, Jaworski v. Ernst & Young U.S. LLP, 441 N.J. Super. 464 (App. Div. 2015), which was almost certainly a critical factor in the Supreme Court’s decision to grant certification.
In Skuse, Pfizer presented its mandatory arbitration policy to thousands of employees as part of a four-slide “training module” or “activity” or “course” sent via mass email. The email in turn linked to the company’s computer-based training portal. In a separate email, Pfizer provided a link to frequently asked questions concerning the arbitration policy which included questions such as “Do I have to agree to this?” and “Can I change any parts of the terms of the Arbitration Agreement?” The first slide stated that employment was conditioned on the parties’ agreement to resolve certain disputes through arbitration; that the agreement was contained in the Mutual Arbitration and Class Waiver Agreement that would be available to review and print of the following slide; that it was important the employee be aware of the terms of same; and that the employee would be asked to acknowledge receipt of the agreement. The second slide provided employees with access to a “resource” link to the full text of the policy. On the third slide of the module, employees were asked to “acknowledge” the policy by clicking a box or electronic button. Further, this slide expressly stated that continuing to work for the company for more than sixty days would constitute agreement to the policy. The final slide of the module thanked employees for reviewing the arbitration agreement and provided an email address where they could direct any questions.
Three months after being terminated from Pfizer for her failure to receive a yellow fever vaccination, employee Amy Skuse filed a Complaint against Pfizer alleging violation of the New Jersey Law Against Discrimination, N.J.S.A. 10:5-41 to 49, based on religious discrimination and failure to provide reasonable accommodation for her religious beliefs against receiving injections containing animal protein. In response to the Complaint, Pfizer filed a motion to dismiss the action and to compel Skuse to submit the claims to binding arbitration pursuant to the arbitration agreement Skuse admittedly “acknowledged.”
The trial court granted Pfizer’s motion. In reversing the trial court’s decision, the Appellate Division held that Pfizer’s procedure was inadequate to substantiate Skuse’s knowing and unmistakable assent to arbitrate any claims. In so holding, the court re-emphasized the Supreme Court’s holding in Leodori v. CIGNA Corp., 175 N.J. 293 (2003), which requires explicit, affirmative, and unmistakable assent to arbitration.
Importantly, in its decision, the Appellate Division provided guidance as to best practices for seeking an employee’s legally binding assent to arbitration policies transmitted through electronic means. The following represents a summary of these best practices:
A company’s binding arbitration agreement should be conveyed in a manner that emphasizes the “legal significance and necessary mutuality of contractual process.” Pfizer’s conveyance of its arbitration agreement through a “training module” or “training activity” failed in this respect. To this end, the Appellate Division clearly stated: “obtaining an employee’s binding waiver of his or her legal rights is not a training exercise.”
An arbitration policy must be “presented in a fashion that produces an employee’s agreement and not just his or her awareness or understanding.” Stated differently, an employee’s mere receipt or acknowledgement of the company’s arbitration policy is not enough to make it enforceable against him. The employee must voluntarily agree to the policy. Thus, the acknowledgment “click box” on the third slide of Pfizer’s training module critically failed to extract Skuse’s “explicit, affirmative agreement.”
The material terms of an arbitration agreement cannot be inconsistent or vague. With regards to Pfizer’s training module, the Appellate Court found that although the Company intended for the employee’s click of the acknowledgment box to substitute for a physical signature and thus represent an agreement to the policy, the term “acknowledge” near the click button was made vague by language in the opening slide explaining that the employee would be asked at the end of the presentation to “acknowledge receipt” of the agreement, without mentioning the employee’s need to also convey his assent to the terms of the policy. Further, the court found that the final slide of the module merely thanked the employee for “reviewing” the document. Finally, Pfizer referred to the entire process as a “training activity,” thus further confusing whether the employee was engaging in an agreement and waiver of rights.
If an employer wishes to obtain an employee’s knowing and voluntary consent to an arbitration agreement by electronic means, the employee’s click of a button or electronic signature must be “tethered to and spotlighted with a clear and proximate direction that, by clicking the button, the employee is knowingly agreeing to waive his or her legal rights” to access the courts and have a trial. To this end, although the words “agree” and “agreement” appeared several times on the slides in Pfizer’s module and also within the linked policy, the use of these words outside of the click button was deemed insufficient to satisfy the requirements of Leodori.
To comply with the tenets of Leodori, the Appellate Court suggested that in order to seek an employee’s legally binding response to an arbitration agreement, a “click box” could read as follows: “Click here to convey your agreement to the terms of the binding arbitration policy and your waiver of your right to sue.” Indeed, the panel also noted that Pfizer could use a touch screen or other electronic method for employees to supply their signatures.
July 29, 2019
Mark Twain, upon learning his obituary was mistakenly published, wrote that the reports of his death are greatly exaggerated. The same can be said about arbitration agreements.
In 2018, New York passed a statute to deal with the “scourge of sexual harassment.” Codified as CPLR Sec. 7515, the law prohibits contracts that require “the parties to submit to mandatory arbitration to resolve any allegation or claim of an unlawful discriminatory practice of sexual harassment.” In 2019, the New York Legislature passed a bill to expand this prohibition to agreements that require arbitration of all discrimination claims.
As predicted, the ban on arbitration is now under attack based upon the Federal Arbitration Act (“FAA”). Just a few weeks ago, federal Judge Denise Cote in Latif v. Morgan Stanley & Co., LLC, No. 1:18-cv-11528 (S.D.N.Y. June 26, 2019), rejected Plaintiff’s argument that New York law voids an arbitration agreement. In reliance upon Supreme Court precedence, Judge Cote held that state laws prohibiting the use of arbitration to resolve particular disputes are preempted by the FAA.
The take-away: New York employers should continue to require employees to arbitrate harassment and discrimination claims. Having employees sign arbitration agreements serves two purposes. First, it may result in employees believing they have no choice but to file their claims in arbitration. Second, if employees try to assert their claims in court, defense counsel relying on recent precedence, can argue that the FAA preempts New York state law. Accordingly, employers should not be so quick to give up on arbitration agreements. Their death has greatly been exaggerated.
July 12, 2019On June 26, 2019, United States District Court Judge Denise Cote, Southern District of New York, held in Latif v. Morgan Stanley & Co., LLC, et al., No. 1:18-cv-11528 (S.D.N.Y. June 26, 2019), that New York’s ban on mandatory arbitration agreements of employment-related sexual harassment claims is preempted by the Federal Arbitration Act (“FAA”)
April 25, 2019
On April 24, 2019, the United States Supreme Court decided Lamps Plus, Inc. v. Varela, No. 17-988, in which it held (by a 5-4 vote) that, under the Federal Arbitration Act (FAA), parties have not agreed to class arbitration where the arbitration clause at issue is ambiguous about the availability of such arbitration. There, a Lamps Plus employee sued the company on behalf of a putative class of employees after a data breach exposed approximately 1,300 employees’ tax information, but the employee had signed an arbitration agreement at the outset of his employment. The agreement stated that all disputes arising out of the employment relationship would be resolved by arbitration and provided that the claims would be resolved in accordance with the rules of the arbitral forum.
Reversing both the district court’s order compelling class arbitration and the Ninth Circuit’s affirmance, the Supreme Court, relying on one of its prior decisions in 2010, reasoned that ambiguity—like silence—in an arbitration agreement regarding class arbitration is insufficient to infer that the parties affirmatively agreed to such arbitration. The Court also rested heavily on what it deemed the fundamental differences between class and individual arbitrations, only the latter of which the Court claimed was envisioned by the FAA. Class arbitration, the Court proffered, does not allow for “lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes.” The Court also eschewed the lower courts’ reliance on the contra proferentem doctrine (ambiguity in a contract construed against the drafter), which it called a “doctrine of last resort,” reasoning that its use by the lower courts was inconsistent with the fundamental rule that arbitration is a matter of consent.
In dissent, Justice Ginsburg pilloried the majority for “how treacherously the Court has strayed from the principle that arbitration is a matter of consent, not coercion.” Observing the current state of arbitration and its present uses, her dissent called for urgent action by Congress to “correct the Court’s elevation of the FAA over the rights of employees and consumers to act in concert. In a separate dissent, Justice Kagan believed that resort to the neutral state contract law principle of contra preferendum—a neutral interpretive principle utilized by all 50 states—was appropriate and required if the arbitration agreement was ambiguous. Justice Kagan chided the majority for disregarding the parties’ actual arbitration agreement.
The Lamps Plus decision is important because it signals that arbitration agreements that are ambiguous as to the availability of class arbitration will be construed as prohibiting the same. Indeed, Lamps Plus (and the Court’s prior decision in Stolt-Nielsen regarding an arbitration clause completely “silent” as to class arbitration) raises an interesting question: is there even a need for an affirmative class arbitration waiver? While in the abstract, perhaps the answer is “no,” the safer and less expensive answer for employers and other companies seeking to preclude class arbitration (and class actions) is “yes.” Dissents notwithstanding, Lamps Plus is yet another win for companies in the Roberts’ Court.
March 26, 2019
On March 18, 2019 groundbreaking employment legislation was enacted in New Jersey. While it is only a few paragraphs long, it makes three significant changes to the employment law landscape in the Garden State.First, Senate Bill No. 121 bars provisions in an employment agreement that waive any substantive or procedural right or remedy relating to a claim of discrimination, retaliation or harassment (although it does not apply to union employees covered by a collective bargaining agreement (“CBA”)).
November 14, 2018As the weather gets colder and the days shorter, the end of the year can’t be too far away. Now is a good time to start reviewing your Company’s personnel policies so that your house can be in order to start the new year.
October 9, 2018
Every employer in New Jersey, regardless of size, needs a written Paid Sick Leave policy in place and distributed to employees no later than October 29, 2018. Please contact us if you need assistance drafting this policy or updating your other personnel policies.
Whether as stand-alone policies or those accumulated in an employee manual, the following are the types of policies which must, or at the very least should, be in writing in NJ:
May 29, 2018
On May 21, 2018 the United States Supreme Court delivered another blow to employee rights. In Epic Systems v. Lewis, the Court issued a monumental decision protecting employers from class action lawsuits.In Epic Systems, the Court upheld the right of employers, as a condition of employment, to require employees to arbitrate claims individually on a one-on-one basis rather than collectively or as a class. According to the Court, this can be accomplished simply by sending an e-mail to employees informing them if they don’t note their objection, they will be considered to have consented to arbitration on an individual basis. This decision effectively precludes workers from suing in court or filing for arbitration when their claims are small, such as when suing for an employer’s failure to pay minimum wages or overtime pay. According to Justice Ruth Bader Ginsburg in her dissent, “[t]he inevitable result of today’s decision will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.” Tip to Employers: Consider requiring employees to sign arbitration agreements or send an e-mail informing employees that, if they don’t object, they will be bound to arbitrate their dispute on an individual basis.
May 9, 2018
On April 12, 2018, Governor Cuomo signed New York’s latest budget that includes six laws reflecting the concerns of the Metoo# movement that employers need to know.
Effective July 11, 2018:
Effective October 9, 2018:
Mandatory Sexual Harassment Policy, Prevention Training and Complaint Procedure. The New York State Department of Labor and Division of Human Rights are required to develop and publish a model sexual harassment prevention policy and a model sexual harassment prevention training program for use by employers. All New York employers are required (a) to adopt the model policy and training program or, establish their own that equals or exceeds the minimum standards of the model policy and program; and (b) distribute the written policy and provide sexual harassment training to all employees at least annually.
Effective January 1, 2019:
Government Contractors. As part of the bidding process for State contracts, bids must include a statement certifying that the bidding entity has implemented a written policy addressing sexual harassment in the workplace and sexual harassment training to all of its employees. With respect to no-bid projects, the State has the discretion to request such certification.
March 21, 2018
The Me Too and Time's Up movements rekindled the nation's collective awareness concerning sexual harassment and abuse which had all but disappeared since the Clarence Thomas Supreme Court confirmation hearings in 1991.
What contributed to this lack of discourse concerning the prevalence of sexual harassment in our society over the past 25 years? The use of nondisclosure agreements (NDAs) and confidentiality clauses in settlement agreements surely played a part -- as have mandatory arbitration agreements required by employers.
NDAs and confidentiality clauses are standard fare when parties settle sexual harassment and abuse cases.
In exchange for a settlement payment -- such as the $130,000 payment made on President Trump's behalf to Stormy Daniels -- the victim of harassment agrees not to discuss the claims made, or the terms, and sometimes even the existence, of the settlement.
These agreements usually also call for significant financial penalties should the plaintiff violate the confidentiality clause. For example, in the agreement at issue in the Trump-Daniels lawsuit, Daniels, whose legal name is Stephanie Clifford, is required to pay the president $1 million for each of her breaches of the confidentiality clause. Trump's lawyer claims she has violated the terms 20 times.
Is this agreement enforceable?
Probably not because the $1 million liquidated damage amount for each breach appears to be an unenforceable penalty rather than an estimation of likely damages should confidentiality be breached. For the same reason, it also isn't fair and most plaintiffs' attorneys would never allow a client to sign such a provision (unless their client is desperate for the money or the attorney believes the clause is unenforceable).
So far, however, this confidentiality clause has kept Daniels relatively quiet. Had there been no such provision, or if the court in the pending litigation refuses to uphold it, she undoubtedly will "tell all" of the sordid details in a book deal, which is likely to follow -- and, regardless, she may possibly do so on "60 Minutes" this weekend.
Meanwhile, as the porn star touted passing a polygraph test to prove she's not lying about her 2006-2007 tryst with Trump, another woman is suing to get out from under a 2016 confidentiality agreement so she can discuss her alleged affair with Trump. This week former Playboy Playmate of the Year, Karen McDougal, has filed suit in Los Angeles.
Confidentiality clauses serve useful purposes.
They protect the reputation of the alleged harasser when frivolous claims are brought. They also protect the plaintiff who does not want it known that she was subjected to sexual abuse or that she sued her employer. Finally, confidentiality clauses make it easier to settle cases because they protect the good will of the employer.
In fact, companies will pay more to a victim of harassment as hush money to avoid the impact of these types of allegations on their bottom-lines. Bad publicity from these cases can be devastating, as Harvey Weinstein's now bankrupt company recently learned.
On the other hand, as seen lately, confidentiality clauses enable harassers to continue their pattern of abuse and expose other unsuspecting victims to this same treatment. Weighing the advantages and disadvantages of these provisions, the time has come to limit the use of these "gag-orders" and Congress agrees.
Buried deep inside the new Tax Cuts and Jobs Act is a provision which disallows tax deductions for monies employers pay to harassment victims and for legal fees if the parties enter into a confidentiality agreement. In essence, since late December parties must choose between deductibility and confidentiality.
For now this seems to be a fair middle ground. It enables companies to protect themselves and alleged harassers against frivolous claims by insisting upon confidentiality while at the same time also providing victims with some leverage to insist upon no confidentiality.
Lawyers of course will find some work-arounds, whether through stronger clauses confirming that the settlement is not an admission of liability or requiring the victim to confirm in an agreement -- whether or not it is true -- that there simply was no harassment. The settlement value of harassment cases also might go down somewhat to make up for a company's loss of the tax deduction when it is insisting upon confidentiality.
Only time will tell whether this law goes far enough to expose harassers and deter their behavior in the first place.