California Continues to Whittle Away Non-Disclosure and Non-Disparagement Clauses in Employee Settlement and Separation Agreements

Nelson Mullins Riley & Scarborough LLP

California, effective 2022, will prohibit employers from incorporating non-disclosure and non-disparagement clauses in agreements signed on or after Jan. 1, 2022 unless they allow employees to discuss or disclose information about unlawful acts in the workplace, including possible harassment, retaliation, and discrimination. The new law, SB 331, known as the “Silenced No More Act” (the “Act”), expands on the previously enacted Stand Together Against Non-Disclosure (“STAND”) Act and the definition of “information about unlawful acts in the workplace.” The Act impacts settlement agreements, employment agreements and separation agreements in several meaningful ways. In the next two months, employers of California workers should evaluate their existing agreement templates and any possible or pending cases to make sure they comply with the new law and assess whether this development affects the strategy, timing and outcome of any pending matters.

Impacts on Settlement Agreements

The 2018 STAND Act prohibits and invalidates provisions in settlement agreements preventing the disclosure of “factual information related to a claim” filed in court or in an administrative action for claims involving (1) certain acts of sexual assault, (2) sexual harassment, (3) workplace harassment or discrimination based on sex, (4) failure to prevent workplace harassment or discrimination based on sex, or (5) retaliation against a person for reporting harassment or discrimination based on sex.

The Silenced No More Act expands these prohibitions to confidentiality provisions in settlement agreements relating to the disclosure of underlying factual information relating to any type of workplace harassment, discrimination or retaliation, whether the protected characteristic is sex, age, national origin, race or others covered by California law.

While the new law does not prohibit provisions requiring confidentiality of settlement amounts or the protection of the claimant’s identity, any such provisions are subject to the same requirement to clarify what disclosures remain protected by law. Similarly, the Act does not restrict waivers, general releases of claims or nondisclosure language covering other legally-protectible information, such as trade secrets or sensitive business information, unrelated to unlawful acts in the workplace.

Impacts on Employment Agreements

The Act also prohibits employers from requiring California employees, as a condition of their employment, to enter non-disparagement or other contractual provisions that restrict the employee’s ability to disclose information relating to workplace conditions and other unlawful acts in the workplace. The new law only permits employers to include this type of restriction if the applicable agreement includes specific language that the disclosure is protected by law. Specifically, employment agreements must now include a provision stating that “[n]othing 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.”

Impacts on Separation Agreements

The new law also mandates these provisions for employees separating from employment and includes a major change to any separation agreement entered in California. Going forward, California employers who offer employees agreements relating to their separation must notify the employee or former employee of the right to consult with an attorney and provide a period of at least five business days to consult with the attorney. This obligation exists regardless of the employee’s age, unlike the federal Older Worker Benefit Protection Act, which requires a 21-day consideration period to waive a claim under the Age Discrimination in Employment Act for individuals aged 40 and above.

Employer Action Items and Considerations

Employers with employees in California should evaluate any pending or active workplace claims to assess how the new law may affect their possible litigation strategy before and after Jan. 1, 2022. More broadly, employers should evaluate their employment, separation and settlement agreement templates and forms to ensure they are updated and compliant with the Act.

For more information or specific advice on California employment and labor issues, please feel free to contact Mitchell Boyarsky, John Veysey, Nick Ladin-Sienne or any other attorney in the Nelson Mullins Employment and Labor Practice Group.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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