Governor Newsom recently signed into law SB 331 to impose a number of new restrictions on employment settlement, separation, and nondisclosure agreements. Here’s an overview of the new requirements, which apply to agreements entered into on or after January 1, 2022:

First, for settlement agreements involving claims of harassment or discrimination based on any protected class or retaliation, the new law bars confidentiality provisions that prevent an employee from disclosing information regarding the claim. This is an expansion of current law that prohibits such confidentiality clauses in settlement agreements pertaining to claims of sexual assault, sexual harassment, or sex discrimination. Consistent with existing law, employers can still prevent the disclosure of amounts paid in settlement. Also, at the employee’s request, an agreement may include a provision that shields their identity and facts that could lead to the discovery of their identity, except if a government agency or public official is a party to the settlement agreement.

Second, SB 331 prohibits confidentiality and non-disparagement provisions in employment separation and nondisclosure agreements that have the purpose or effect of restricting disclosure of information about harassment, discrimination, or other workplace conduct the employee believes is unlawful. Furthermore, employers must include the following language in a non-disparagement or other contractual provision that restricts an employee’s ability to disclose information related to conditions in the workplace: “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.” These requirements do not apply to a negotiated settlement agreement to resolve an underlying claim filed by an employee in a court, administrative agency, alternative dispute resolution forum, or the employer’s internal complaint process.

Third, the new law requires that for all employment separation agreements (except negotiated settlement agreements as noted above), the employer must (1) notify the employee that the employee has a right to consult an attorney regarding the agreement, and (2) provide the employee with a reasonable time period of not less than five business days in which to do so. An employee may sign the agreement prior to the end of the five-day period if the decision to do so is knowing and voluntary and not induced by the employer through fraud, misrepresentation, a threat to withdraw or alter the offer, or by providing different terms if an employee signs prior to the expiration of such time period.

In light of these new provisions, employers should promptly review template agreements to ensure compliance as of January 1, 2022. Agreements that do not comply may be unenforceable.