California Prohibits “No Rehire” Provisions In Settlement Agreements

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Beginning January 1, 2020, agreements to settle employment disputes may no longer contain “no rehire” provisions, as California passes additional legislation spurred on by the #MeToo movement. California joins Vermont and Oregon as the first states to prohibit “no rehire” provisions in employment settlement agreements.

“No rehire” provisions typically state that a former employee will not be rehired by the employer or its parent, subsidiary, or affiliate companies as part of an agreement to settle employment-related disputes. Additionally, these provisions may state that the refusal to rehire cannot be evidence of discrimination or retaliation. While once common, such provisions are now prohibited in California by Assembly Bill 749, which will go into effect as California Code of Civil Procedure § 1002.5.

The law applies to all settlements reached following the resolution of an employment dispute, even where no lawsuit was filed. The law states that it applies to instances where an “aggrieved person” has filed a claim in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process.

There is a single exception to the prohibition against “no rehire” provisions: a “no rehire” provision may be permitted if the employer has made a good faith determination that the individual engaged in sexual harassment as defined by the Fair Employment and Housing Act, or sexual assault as defined in the California Penal Code. This exception applies only to the employer and will not permit a broad “no rehire” provision prohibiting the settling individual from obtaining future employment with the settling employer’s parent companies, subsidiaries, affiliates, or contractors.

The law clarifies that it does not require an employer to continue to employ or rehire an individual if there is a legitimate, non-discriminatory or non-retaliatory reason for terminating the employment relationship, or for refusing to rehire the individual. Where a dispute is raised by a current employee, the employee and employer may agree to end the employment relationship as part of the settlement agreement.

California Code of Civil Procedure § 1002.5 will apply to all settlement agreements entered on or after January 1, 2020, and will not apply retroactively to agreements entered before that date.

California employers should review their standard severance agreements and settlement agreements to ensure they are up to date in the coming year.

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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