Code of Civil Procedure section 1001 (“Section 1001”) currently prohibits settlement agreement provisions that bar disclosure of factual information regarding an administrative or civil claim for sexual assault, sexual harassment, harassment or discrimination based on sex, failure to prevent such an act, or retaliation against a person for reporting such an act. Newly enacted law, for agreements entered into on or after January 1, 2022, expands the prohibition to include acts of workplace harassment or discrimination not based on sex.

A provision of the new law shields the identity of the claimant and facts that could lead to the discovery of the claimant’s identity, including pleadings filed in court, and can be included within a settlement agreement at the request of the claimant.

Senate Bill 331 (SB 331) also amends a portion of the California Fair Employment and Housing Act (“FEHA”), Government Code section 12964.5. Under current law, 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 non-disparagement agreement or other document that purports to deny the employee the right to disclose information about “unlawful acts in the workplace,” including, but not limited to, sexual harassment or discrimination.

This new law provides that, after January 1, 2022, unlawful acts in the workplace include any harassment or discrimination and prohibits an employer from requiring an employee to sign a non-disparagement agreement or other document in exchange for a raise or bonus, or as a condition of employment or continued employment if it has the purpose or effect of denying the employee the right to disclose information about those acts. Further, if an employer requires employees to sign a non-disclosure agreement during employment, the new law requires that employers 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.”

SB 331 also makes it unlawful for an employer or former employer to include in any separation agreement a provision that prohibits the disclosure of information about unlawful acts in the workplace. Beginning January 1, 2022, any non-disparagement or other contractual provision that restricts an employee’s or former employee’s ability to disclose information related to conditions in the workplace must include, in substantial form, 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.” Further, SB 331 requires: (1) that a separation agreement notify the employee that they have a right to consult an attorney regarding the agreement; and (2) the employer to provide the employee with a reasonable time period (at least five business days) in which to do so.

Importantly, the requirements regarding separation agreements (i.e., the required statement and notice regarding right to counsel) do not apply to a “negotiated settlement agreement to resolve an underlying 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.” Therefore, employers must include the disclaimers and provide the required review/consideration period only in releases where employees have not yet filed a claim or charge with an administrative agency or in court or pursued through an employer’s internal complaint process. Employers also should note that “negotiated,” in this context, means that the agreement is voluntary, deliberate, and informed, the agreement provides consideration of value to the employee, and the employee is given notice and an opportunity to retain an attorney or is represented by an attorney.

Based on these changes, it is important to contact your employment attorney before you negotiate a separation agreement with an employee or seek to have employees sign non-disparagement agreements. Unless properly crafted, such provisions
now can result in liability to the employer and can be considered void.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.