In 2019, California adopted several laws that restricted “non-disclosure" provisions in employment-related agreements. Those laws, passed in the wake of the “me too” movement, limited non-disclosure provisions in settlement agreements for lawsuits and administrative agency charges involving allegations of sexual harassment.1 They also limited the use of non-disclosure provisions in exchange for a raise or a bonus, or as a condition of employment or continued employment.2

The following year, AB 749 restricted the use of “no-rehire” provisions in employment settlement agreements.3

Now, SB 331 takes this trend one step further by more broadly limiting the use of non-disclosure provisions in various types of employment agreements, including settlement and separation agreements. The new law amends two of the laws from 2019 and becomes effective on January 1, 2022.

Employment Discrimination Litigation Settlement Agreements

California Code of Civil Procedure section 1001 currently provides that a settlement agreement may not prevent the disclosure of factual information related to a lawsuit or administrative agency charge regarding either sexual assault, sexual harassment, discrimination based on sex, or retaliation against a person for reporting harassment or discrimination based on sex. The law allows for the parties to agree to shield the identity of the claimant and the monetary amount of a settlement agreement.

SB 331 widens these restrictions 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 the basis of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or veteran or military status.

In a settlement agreement involving a previously-filed lawsuit or charge, the new law still allows for the identity of the claimant and all facts that could lead to the discovery of the claimant’s identity to remain confidential, at the request of the claimant. The law does not prohibit parties from agreeing to keep confidential the amount paid in settlement of a claim.

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. (Note that the restriction of non-disclosure agreements in sex harassment and discrimination cases became effective on January 1, 2019.)

Other Employment Agreements, Including Severance Agreements

SB 331 also limits the use of non-disclosure provisions in other types of employment agreements, including severance agreements, even where no litigation, claim or internal complaint has been filed.

Background

Currently, California Government Code section 12964.5, a part of FEHA, makes 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 an employee to sign a release of a claim under FEHA. It is also an unlawful 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.

The law also currently 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 law provides that the term “negotiated” means that the agreement is voluntary, deliberate, and informed, provides consideration of value to the employee, and further requires that the employee either be represented by counsel, or be given notice of their right to retain an attorney.

Effects of SB 331

SB 331 substantially re-tools this provision within FEHA. The measure amends the phrase “unlawful acts in the workplace” by deleting the phrase “including but not limited to sexual harassment.” The law goes on to further define “unlawful acts in the workplace” as including “harassment or discrimination or other conduct that the employee has reasonable cause to believe is unlawful.” This amendment is similar to the amendment for settlement agreements, described above. It broadens the prior law, which arguably was limited to claims involving sex harassment or discrimination, to cover claims involving discrimination on any basis, including age, race disability, and so on.

The amended law then moves on to specifically restrict the provisions that may be included in a separation or severance agreement between an employer and an employee. Mirroring existing law applicable to non-disparagement agreements, it 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.

That being said, the amended law, like the prior version, does not restrict the use of non-disparagement provisions in a “negotiated settlement agreement.” Additionally, the new law does not limit the ability of parties to keep in confidence the monetary amount of a severance payment. Nor does it prohibit an employer from protecting its trade secrets, proprietary information or confidential information “that does not involve unlawful acts in the workplace.”

To that effect, 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, as follows: “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, 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.

Practical Suggestions

Employers doing business in the Golden State should prepare for compliance with these new restrictions in the coming year. In the meantime, it may be prudent to review pending litigation and other disputes, as well as existing employment relationships, to determine if resolution is possible before SB 331 takes effect. Employer policies and provisions regarding confidential information and trade secrets also should be reviewed to determine whether they are affected by the amended law.