Expansion of Prohibitions on Non-Disclosure and Non-Disparagement Agreements
SB 331: Code of Civil Procedure § 1001 (amended); Government Code § 12964.5 (amended)
Effective January 1, 2022, the “Silenced No More Act” will prevent settlement agreements from restricting the disclosure of underlying facts of workplace harassment, discrimination, or retaliation on any protected bases (see Government Code §§ 12940, 12955 for protected characteristics) related to a claim filed in a civil action or a complaint filed in an administrative action. Previously, the law only prohibited such clauses for settlement agreements regarding sexual assault, sex-based discrimination, sexual harassment, or retaliation for reporting sex discrimination or harassment. Agreements may continue to include provisions prohibiting disclosure of the settlement amount and lawfully protected confidential employer information (e.g., trade secrets). Claimants may continue to request provisions that shield their identity or facts that may lead to their identity.
The law further restricts non-disparagement agreements as a condition of bonuses, raises, employment, or as part of a severance plan. Such agreements may not deny an employee’s right to disclose information about unlawful acts in the workplace, with the legislation specifically enumerating discrimination and harassment. Non-disparagement or related provisions must include language to the substantial effect: “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” (emphasis added). Employers may still include a lawful and valid general release or waiver of all claims in a separation agreement.
Finally, the law requires employers offering an employee or former employee a separation agreement to notify the employee that they have the right to consult with an attorney. Employers must offer no less than five business days to do so. Employees may sign before the time period ends, but such a decision must be “knowing and voluntary” and not improperly induced by the employer (e.g., with fraud or threat).
Employer Pro Tips:
- Act Before 2022: This law does not go into effect until January 1, 2022. If employers have pending matters with an employee alleging discrimination on a basis other than sex, employers may still include non-disclosure provisions as part of a settlement package before the end of the year.
- Review and Update Settlement Agreements: Consult with legal counsel to ensure that standardized terms in your settlement agreements conform to the law.
- Consider Litigating Meritless Claims: While the risk of litigation remains prevalent, this law may change the calculus of some employers. Previously, employers were often motivated to dispose of meritless claims with a non-disclosure agreement as part of that strategy. Now that aggrieved employees may speak openly about allegedly unlawful acts in the workplace regardless of settlement terms, employers may consider taking these matters to trial to vindicate their reputations.
- Keep Settlement Amounts Confidential: While this law grants aggrieved employees substantially more freedom to discuss the alleged facts of their cases, employers may continue to prevent disclosure of settlement amounts. Employers should do so to prevent granting putative future plaintiffs that valuable information as a bargaining tool.
- Employees Signing Without Counsel May Later Contest the Agreement: The law allows employees to enter a settlement agreement without counsel and before the end of a “reasonable time period” (no less than five business days). However, such a decision must be “knowing and voluntary,” and “not induced by the employer through fraud, misrepresentation, or a threat,” among other restrictions. Here, other areas of the law are instructive. These terms leave substantial room for later litigation where employees will post hoc challenge the voluntariness of such agreements. Any waivers of the right to counsel should be written and drafted by expert legal counsel.