California Governor Gavin Newsom on October 7 signed Senate Bill 331, which will prohibit employers from (1) including in a settlement agreement a clause that restricts an employee’s right to disclose information about discrimination and harassment in the workplace, and (2) including in a severance agreement a clause that restricts an employee’s right to disclose information about unlawful working conditions. California employers that routinely rely on these types of clauses in their settlement and severance agreements should consider updating them before the law takes effect on January 1, 2022.

The new law significantly expands California Code of Civil Procedure section 1001 and Government Code section 12964.5. This LawFlash discusses the key changes included in Senate Bill 331 (SB 331), and takeaways for affected employers.

NDAs in Settlement Agreements: Amendments to Code of Civil Procedure § 1001

Since January 1, 2019, section 1001 of the Code of Civil Procedure has barred the use in settlement agreements of any non-disclosure agreement (NDA) that prohibits the disclosure of facts related to claims of sex discrimination and sex harassment.

SB 331 expands section 1001 to include all forms of discrimination and harassment, whether based on sex or any other protected category under California law. This includes race, color, national origin, ancestry, religion, creed, age, disability, medical condition, genetic information, marital status, sexual orientation, and military/veteran status. Starting January 1, 2022, employers that settle discrimination or harassment claims with employees in California may not include this type of NDA in their settlement agreements.

Notably, section 1001 applies only to settlement agreements that resolve pending civil actions and administrative charges. It does not apply to claims settled prior to the commencement of a formal court or agency action. Further, a settlement agreement may contain a provision that protects the identity of the employee if the employee requests this protection. Finally, the agreement may contain a provision that maintains the confidentiality of the settlement amount.

Non-Disparagement Clauses in Severance Agreements: Amendments to Government Code § 12964.5

Since January 1, 2019, section 12964.5 of the Government Code has made it unlawful for an employer to require an employee to sign a non-disparagement agreement that denies an employee the right to disclose information about unlawful acts in the workplace, including harassment or discrimination, in exchange for a raise or bonus, or as a condition of employment or continued employment.

SB 331 expands section 12964.5 to apply to severance agreements. The new legislation prohibits an employer from including in a severance agreement a non-disparagement clause that prohibits the disclosure of facts regarding harassment and discrimination. The law provides that an agreement that is executed in violation of either of those prohibitions is contrary to public policy and unenforceable.

Under section 12964.5, as revised by SB 331, if an employer offers an employee or former employee an agreement related to their separation, the employer must notify the employee that they have a right to consult an attorney regarding the agreement, and must provide the employee a reasonable time period of not less than five business days to do so. An employee may sign the agreement earlier, so long as the decision is knowing and voluntary. It is advisable to include language in a severance agreement regarding this notice or otherwise maintain proof of the notice.

Further, SB 331 provides that any non-disparagement agreement that limits an employee’s ability to disclose information regarding the workplace must, in substantial form, include 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.

Employers may include a provision in a severance agreement that requires the amount paid in severance to remain confidential. Also, a severance agreement may include a term that maintains the confidentiality of the employer’s trade secrets, proprietary information, or other confidential information unrelated to unlawful acts in the workplace.

In response to SB 331, employers should consider updating their severance and settlement agreements before January 1, 2022.