CALIFORNIA EMPLOYER ALERT: NEW LAW EXPANDS PREVIOUS RESTRICTIONS ON NON-DISCLOSURE/NON-DISPARAGEMENT PROVISIONS OFTEN INCLUDED IN SETTLEMENT OR OTHER SEPARATION AGREEMENTS
In the wake of the “Me too” movement, California implemented several laws in 2019 designed to limit non-disclosure provisions often included in settlement agreements. California Code of Civil Procedure section 1001 currently provides that “a provision within a settlement agreement that prevents the disclosure of factual information related to a claim filed in a civil action or a complaint filed in an administrative action, regarding any of the following, is prohibited: (1) sexual assault, (2) sexual harassment, (3) discrimination based on sex, or (4) retaliation against a person for reporting harassment or discrimination based on sex. The law permits the parties to agree to shield the identity of the claimant and the monetary amount of the settlement agreement.
The Legislature has amended this law (signed by Governor Newsom) to widen section 1001 to include not only sexual harassment and discrimination, but all types of discrimination prohibited by the Fair Employment and Housing Act (FEHA). This expanded coverage includes allegations of discrimination on all protected grounds contained within FEHA.
Any provision in a settlement agreement entered into on or after January 1, 2022 contrary to these restrictions is void as a matter of law and against public policy.
Other Employment Agreements, Including Severance/Separation Agreements
Also in 2019, to further bolster its response to the Me Too movement, California also amended FEHA to make it an unlawful employment practice for an employer, in exchange for a raise or bonus, or as a condition of employment or continued employment, to require (1) an employee to sign a release of a claim under FEHA. (California Government Code section 12964.5); and (2) made it an unlawful employment practice for an employer to require an employee to sign a non-disparagement agreement denying the right of an employee to disclose information about unlawful acts in the workplace, including but not limited to sexual harassment. Notably, the current law provides that its limitations do not apply to a negotiated settlement agreement to resolve pending litigation, whether filed in court, before an administrative agency, or in an alternative dispute resolution forum, or to resolve a complaint filed through an employer’s internal complaint process. The section was silent on traditional severance agreements.
SB 331 substantially re-writes this provision within FEHA. The measure deletes the phrase “including but not limited to sexual harassment,” which followed ““unlawful acts in the workplace”.” The law now defines “unlawful acts in the workplace” as including, without limitation, “harassment or discrimination or other conduct that the employee has reasonable cause to believe is unlawful.” While similar to the other amendment described above regarding settlement agreements, it broadens the prior law that appeared limited to claims involving sex harassment or discrimination only. Now, it appears the section applies to claims involving discrimination on any FEHA-protected basis, including age, race disability, and so on.
The amended law now specifically restricts provisions that may be included in a separation or severance agreement between an employer and an employee. Following existing law applicable to non-disparagement/non-disclosure agreements, SB 331 precludes the use of any provision in an employment separation or severance agreement that prevents the disclosure of “information about unlawful acts in the workplace,” as defined above. The parties can still keep in confidence the monetary amount of a severance payment and employers may protect its trade secrets, proprietary information or confidential information so long as it “does not involve unlawful acts in the workplace.”
To the extent employers want to include non-disparagement/non-disclosure provision in such an agreement, SB 331 offers sample language allowing for a “carve out” to be used in connection with a general confidentiality clause in any agreement between an employer and employee. The law cites the following language: “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”
Finally, SB 331 requires that, when offering an employee a severance agreement with such a provision, an employer must notify the employee that they have the right to consult with an attorney. The employer must provide a reasonable time period (not less than five business days) for consultation. An employee may decide to sign such an agreement prior to the expiration of the consultation period, as long as the employee’s decision is knowing and voluntary and is not induced by the employer through fraud, misrepresentation, or a threat to withdraw or alter the offer prior to the expiration of the consultation period, or by providing different terms to employees who sign such an agreement prior to the expiration of such time period.