California Further Restricts Use of Nondisclosure and Nondisparagement Provisions and Adds Requirements for Severance Agreements

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[co-author: Melissa A. Petrofsky-White]

California law is about to place additional restrictions on the use of nondisclosure and nondisparagement provisions and severance agreements. Here are the key takeaways from the new legislation (SB 331):

1. Beginning 2022, Don't Enter into Settlement Agreements That Prevent the Disclosure of Factual Information of Claims Related to Any Form of Harassment, Discrimination, or Related Retaliation

California Code of Civil Procedure section 1001 currently prohibits employers from including nondisclosure provisions in settlement agreements that:

  • (a) Derive from civil or administrative complaints of sexual harassment, sexual assault, workplace harassment or discrimination based on sex, or retaliation for reporting harassment or discrimination based on sex; and
  • (b) Purport to limit an employee's right to publicly disclose factual information regarding the complaint. (See our previous advisory here.)

SB 331 expands CCP section 1001, as of January 1, 2022, to preclude California employers from entering into settlement agreements that restrict the disclosure of factual information of claims related to all forms of unlawful harassment, discrimination, and related retaliation—not just those based on sex. For instance, the complaint may stem from concerns of discrimination or harassment based on race, religion, ancestry, disability, national origin, or any other protected basis under California law.

Importantly, the law still permits employers to include clauses that prevent the disclosure of the amount of money paid to settle the claim and, unless a government agency or public official is a party to the agreement, still allows employees the option of shielding their own identities and all facts that could lead to the discovery of their identities.

2. Don't Ask Employees or Former Employees to Sign Agreements That Deny Them the Right to Disclose Information About Unlawful Acts in the Workplace

SB 331 also affects the use of nondisparagement provisions in severance agreements and agreements required as a condition of employment or continued employment. Specifically, if an employer wants to use a nondisparagement provision as a condition of employment or in a severance agreement, it must carve out an employee's ability to discuss conduct the employee reasonably believes is unlawful. The agreement must state as follows:

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.

Notwithstanding this requirement, employers may still enter into agreements that protect any trade secrets, proprietary information, or confidential information that is unrelated to unlawful acts in the workplace.

Importantly, this restriction does not apply to a negotiated settlement that resolves an underlying claim filed by the employee in court, before an administrative agency, in an alternative dispute resolution forum, or through an employer's internal complaint process. "Negotiated" means the agreement gives the employee or former employee notice of the right to retain an attorney and the opportunity to retain one, among other things.

3. When Entering Into a Severance Agreement, Notify the Employee That the Employee Has the Right to Consult an Attorney

SB 331 also requires employers that offer separation agreements to notify the separating employee that the employee has the right to consult with an attorney and requires that employers provide at least five business days for the employee to do so.

This requirement also does not apply to a negotiated settlement that resolves an underlying claim filed by the employee in court, before an administrative agency, in an alternative dispute resolution forum, or through an employer's internal complaint process.

Practical Guidance

Employers should have experienced employment counsel review their template severance agreements, settlement agreements, and any agreements containing nondisparagement and/or nondisclosure provisions to ensure compliance with the law. While SB 331 makes clear that the changes to CCP section 1001 discussed above are effective January 1, 2022, SB 331 does not state when the expansion of the law as to separation agreements and agreements required as a condition of employment is effective. Accordingly, we recommend updating these templates as quickly as possible.

Employers should also quickly evaluate any active cases involving harassment, discrimination, or related retaliation claims (i.e., not just those stemming from sex discrimination or harassment) to determine whether to resolve any before the end of the year—i.e., before the expanded laws go into effect.

[View source.]

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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