In Separ v. Cnty of Nassau, the U.S. District Court in the Eastern District of New York held that a settlement agreement could not take effect without a signed confidentiality and non-disparagement preference acknowledgement. The case dealt with an employer and employee who had entered into a settlement agreement to resolve the plaintiff employee’s allegations of discrimination and retaliation. The settlement agreement contained an “effective date” clause which stated that the settlement agreement would not take effect until it was executed by the parties, and also contained a “review and revocation” clause that provided the employee the required consideration and revocation periods under New York General Obligations Law § 5-336 and N.Y. CPLR § 5003-B. Specifically, Section 5-336 of the NYGOL prohibits employers from including non-disclosure language in a settlement agreement unless the “condition of confidentiality is the complainant’s preference” and the complainant has 21 days to consider the agreement and 7 days to revoke. N.Y. C.P.L.R. § 5003-B prohibits a condition of confidentiality in a settlement agreement reached in response to a filed complaint unless such a condition is the plaintiff’s preference. Notably, the statutes provide a mechanism for the complainant to acknowledge their preference for confidentiality via a separate acknowledgment form.
The parties in Separ agreed on the terms of the settlement, and the employee executed the settlement agreement within the 21-day consideration period. However, the employee refused to sign the confidentiality and non-disparagement preference acknowledgement form, which was provided via a separate acknowledgment form, per CPLR § 5003-B. The employer filed a motion to enforce the settlement agreement, arguing that the confidentiality and non-disparagement preference acknowledgement form was “separate and apart from the settlement agreement.” However, the court rejected this argument and instead held this is a “material component of the broader settlement agreement,” and therefore the settlement agreement could not take effect without the signed confidentiality and non-disparagement preference acknowledgement. This decision highlights the fact that even intentional and near-perfect adherence to both NYGOL § 5-336 and CPLR § 5003-B may still render a settlement agreement unenforceable if the employee refuses to sign a confidentiality and non-disparagement acknowledgement. Employers should ensure that they review their settlement agreement templates to ensure that each and every “material component” of the entire settlement agreement is fully executed to ensure enforceability. If you have any questions about the subject of this article and its implications for your business, please contact Forework.