New NY Law Prohibits “Liquidated Damages” Provisions for NDAs in Settlement Agreements Resolving Sexual Harassment and Discrimination Claims

New York Governor Hochul recently signed legislation, S4516, that amends New York’s General Obligations Law to prohibit settlement agreements resolving sexual harassment or discrimination claims from containing any condition that requires the complainant to pay the defendant liquidated damages in the event that the plaintiff violates any nondisclosure agreement included in the settlement agreement.

Generally, “liquidated damages” comprise “an amount contractually stipulated as a reasonable estimation of actual damages to be recovered by one party if the other party breaches.” (Black’s Law Dictionary 11th ed. 2019)). In practice, such clauses are often a sticking point in negotiations and, thus, frustrate the settlement process. This law will change that.

The law provides the following justification:

Targets of sexual harassment and discrimination are often required to sign non-disclosure agreements (NDA) in order to receive compensation for the harm they have experienced. These agreements frequently include provisions requiring a plaintiff to pay liquidated damages if they violate the agreement. Thus, survivors who later change their mind or were originally coerced into signing an NDA face an enormous financial penalty for speaking about what happened to them. This legislation will protect survivors from facing financial sanction for sharing their experiences of harassment and discrimination. The bill bars settlements of harassment and discrimination claims from including any terms or conditions requiring a plaintiff to pay liquidated damages for violating an NDA. Additionally, agreements may not require the complainant to forfeit part or all of the consideration for violating the non-disclosure provisions, nor may they be required to sign an affirmative statement, assertion, or disclaimer stating that they were not subject to discrimination or retaliation.

By its terms the law takes effect “immediately.”

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