On October 10, 2021, California Governor Gavin Newsom approved Senate Bill 331 which, effective January 1, 2022, significantly expands restrictions relating to non-disclosure and non-disparagement provisions in many settlement and separation agreements.
First, Senate Bill 331 expands the existing prohibitions on non-disclosure and non-disparagement provisions in settlement agreements. Existing law, under section 1001 of the California Code of Civil Procedure, already prohibits settlement agreements from having non-disclosure or non-disparagement provisions that prevent the disclosure of facts relating to a claim filed in a civil or administrative action regarding sex-based claims, including sex-based discrimination, sexual harassment, or related retaliation. Effective January 1, 2022, this amendment expands the prohibition on non-disclosure and non-disparagement provisions that prevent the disclosure of facts relating to a claim, outside of sex-based claims, to include discrimination, harassment, or retaliation claims based on any protected category under section 12940 of the Government Code, such as race, religion, national origin, and disability.
Second, Senate Bill 331 requires additional express language in most separation agreements. Currently, section 12964.5 of the Government Code makes it an unlawful employment practice for an employer, as a condition of employment or in exchange for a raise or bonus, to require an employee to sign a non-disclosure or non-disparagement agreement with the purpose or effect of prohibiting the employee from disclosing information about unlawful acts in the workplace. This amendment expands the definition of unlawful acts to include non-sex based acts and now applies this prohibition to agreements signed “related to an employee’s separation from employment.” Additionally, and importantly, Senate Bill 331 includes a new requirement that an employer now include the following express language:
- In most non-disparagement and non-disclosure provisions, there must now be a statement stating: “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.”
- General releases in separation agreements (that include release of claims under the Fair Employment and Housing Act) should now likely include a statement that “the employee has a right to consult an attorney regarding the agreement.” Further, the employer must provide the employee with a reasonable time period of not less than five business days to do so. Notably, this new requirement makes clear that the practice of providing separating employees a day or less to sign a separation agreement may now create further compliance issues.
Notwithstanding the above, these express language requirements do not apply to negotiated settlement agreements. Negotiated settlement agreements must be voluntary and deliberate, with the employee being notified of their right to consult an attorney and the opportunity to do so, and must be entered into “in order to resolve an underlying claim filed by an employee in court, before an administrative agency, in an alternative dispute resolution forum, or through an employer’s internal complaint process.” Accordingly, the above-noted express language requirements will likely still be required in general separation agreements which are not entered to formally settle an underlying claim. Under the other provisions of Senate Bill 331, a negotiated settlement agreement will also still likely be prohibited from restricting the non-disclosure of factual information concerning workplace discrimination, harassment, and retaliation based on any protected category if related to a claim or complaint filed in a civil or administrative action.
Due to these significant changes to commonplace provisions in settlement and separation agreements, California employers should review and revise their California settlement and separation agreement templates before year end.