Currently, Code of Civil Procedure section 1001 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. For purposes of agreements entered into on or after January 1, 2022, Section 1001 will expand this prohibition to include acts of workplace harassment or discrimination not based on sex.

The law permits a settlement agreement provision that shields the identity of the claimant and facts that could lead to the discovery of the claimant’s identity, including pleadings filed in court, to be included at the request of the claimant. Also, the law does not prohibit the entry or enforcement of a provision in any agreement that precludes the disclosure of the amount paid in settlement of a claim. The law also does not limit the ability of parties to agree to complete confidentiality in settlements of threatened claims that have not been filed before an administrative agency or court.

In addition to Section 1001, 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 nondisclosure 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 expands existing law by making 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 nondisparagement 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 above 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—e.g., in routine separation agreements during a layoff or restructuring. 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.

Agreements or other documents that violate the new law are contrary to public policy and unenforceable.

To protect employers from public disclosure of settled employment claims it is imperative that the employer identify threatened claims and reach resolution before the employee files with an administrative agency or court. Thus, as soon as an employer hears of a potential claim it should contact their legal counsel to strategize the best resolution of the matter in order to attempt to avoid public disclosure of the claim.

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.