As expected, Governor Gavin Newsom signed California Senate Bill 331, which will have a sweeping effect on settlement and separation agreements.
As we previously wrote, SB 331 expands on previous legislation that prohibited various confidentiality and non-disparagement clauses in settlement agreements and other releases.
Limitations on Confidentiality in Settlement Agreements
Previously, California Code of Civil Procedure Section 1001 prohibited provisions within a settlement agreement that prevented the disclosure of factual information related to a claims filed in both civil and administrative actions, regarding various allegations of workplace harassment or discrimination based on sex.
With the enactment of SB 331, the prohibition on confidentiality will apply to any type of workplace harassment or discrimination claims, not just those based on sex, as of January 1, 2022.
FEHA Releases and Separation Agreements
Previously, California’s Fair Employment & Housing Act (Government Code Section 12964.5) prohibited employers from adding to a release in exchange for a raise, bonus, or continued employment – a non-disparagement clause that purports to deny an employee the right to disclose information about unlawful acts in the workplace, including sexual harassment.
SB 331 adds a few more layers:
Application to “any agreement related to separation”: Starting January 1, 2022, it will be unlawful to include in any agreement related to an employee’s separation from employment any provision that prohibits the disclosure of information about unlawful acts in the workplace.
Any such separation agreement must include a notice about an employee’s right to consult an attorney regarding the agreement, and must allow “reasonable time” (at least five business days) for an employee to consult an attorney, prior to accepting. Any acceptance prior to the end of the “reasonable time” is permitted only if it was “knowing and voluntary” and not induced by the employer’s “fraud, misrepresentation, or threat to withdraw or alter the offer.”
Changed definition of “unlawful acts”: Previously, “information about unlawful acts in the workplace” included “information pertaining to sexual harassment or other unlawful or potentially unlawful conduct.” SB 331 changed the definition to include information pertaining to any type of harassment or discrimination, or other conduct that an employee reasonably believes is unlawful.
Required verbiage: Release or separation agreements that restrict disclosure of information related to “conditions in the workplace,” must include: “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.”
What’s Next and Unanswered Questions
The bill’s use of “any agreement related to an employee’s separation from employment” may be construed to mean that it can also apply to settlement agreements related to an employee’s separation. However, Section 12964.5(d) (from previous legislation) clarifies the restrictions do not apply to “negotiated settlement agreement to resolve an underlying (FEHA) claim that has been filed by an employee in court, before an administrative agency, in an alternative dispute resolution forum, or through an employer’s internal complaint process.”
Similar to previous legislation, SB 331 provides that confidentiality in severance agreements related to an amount paid, is permitted.
Finally, SB 331 clarifies that any limitations on confidentiality in releases and agreements related to separation do not apply to provisions protecting the employer’s trade secrets, proprietary information, or other confidential information.
Employers are advised to carefully review any releases or other separation agreements, to confirm they comply with the new requirements and include all necessary language.
