On October 7, 2021, California Governor Gavin Newsom signed into law Senate Bill 331 (S.B. 331), which prohibits employers from including in settlement agreements or separation agreements certain provisions that bar employees from speaking about experiences of workplace harassment or discrimination.1 The law, which will take effect in 2022, prohibits in separation and other employment agreements nondisclosure and nondisparagement provisions that restrict information sharing about “unlawful acts in the workplace,” at least in certain circumstances, as described below.
Building on #MeToo
In 2018, after the #MeToo movement brought significant public attention to sexual harassment in the workplace, California and several other states passed laws prohibiting settlement agreements that prevent employees from sharing their experiences of sexual harassment. California, for example, enacted S.B. 820 and S.B. 1300 in September 2018. These laws prohibited, among other things, settlement agreements that restricted disclosure of: information about sexual assault, sexual harassment, workplace harassment or discrimination based on sex; failure to prevent such acts; or retaliation related to such acts.2 These laws grew, in part, out of criticism that nondisclosure agreements silence survivors of abuse by high-profile figures such as Larry Nasser and Harvey Weinstein. Women who worked for Harvey Weinstein, for example, reportedly signed settlement agreements that prohibited them from discussing their allegations in any context. In the wake of #MeToo, the broad nondisclosure provisions often included in settlement agreements came under scrutiny for preventing sexual harassment survivors from sharing their experiences.
Building on the momentum of #MeToo, S.B. 331 expands on California’s current laws in two important ways.
First, in certain contexts, the new law prohibits settlement agreement provisions that restrict disclosure of any form of workplace harassment or discrimination—not just disclosure of harassment and discrimination based on sex.3 Previously, the section of California law governing settlement agreements (Section 1001 of the California Code of Civil Procedure) barred an employer from using a settlement agreement to contractually prohibit an employee from sharing their experiences of discrimination or harassment on the basis of sex, but an employer could use such an agreement to prohibit that employee from sharing experiences of discrimination or harassment on the basis of race or other protected characteristics. As amended, the new law narrows that gap, barring settlement provisions that prohibit information-sharing about any form of discrimination and harassment related to a claim filed in a civil action or a complaint filed in an administrative action.4
Second, S.B. 331 builds on prior California law by extending nondisclosure prohibitions to separation agreements. The prior section of law governing agreements made in exchange for a raise or bonus or as a condition of employment or continued employment (Section 12964.5 of the California Government Code) had banned provisions that restrict information sharing about “unlawful acts in the workplace.” The new law expands the scope of this provision to include separation agreements and now defines “unlawful acts in the workplace” as including, but not limited to, “harassment or discrimination or any other conduct that the employee has reasonable cause to believe is unlawful.”5 Unlike Section 1001 of the California Code of Civil Procedure, Section 12964.5 of the California Government Code is not limited to agreements related to a claim filed in a civil action or a complaint filed in an administrative action. Section 12964.5 specifies, however, that its provisions do not apply to negotiated settlement agreements “to resolve an underlying claim under this part that has been filed by an employee in court, before an administrative agency, in an alternative dispute resolution forum, or through an employer’s internal complaint process.”6
Under the new law, any separation agreement that restricts an employee’s ability to disclose information related to conditions in the workplace must include, in substantial form, the following language: “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.” In addition, S.B. 331 adds a requirement that employers offering such an agreement must notify the employee or former employee that they have a right to consult an attorney about the agreement, and provide at least five business days for them to do so.7
The California Chamber of Commerce initially opposed S.B. 331 but dropped its opposition after a series of amendments were added, including one that made clear that the law would not prevent an agreement that prohibits disclosing the amount paid in severance.
The California State Assembly passed S.B. 331 by a vote of 58-13 on August 26, 2021, and the California State Senate passed the bill by a vote of 30-8 on August 30, 2021. It was signed into law by Governor Newsom on October 7, 2021, shortly before the October 10 deadline for gubernatorial action.
The law will apply to all California employees. Employers with employees in California should consider the number of employees who are subject to this law and how it might impact existing practices for entering into settlement and separation agreements. This consideration, as with many employment law questions, may be increasingly complex as employers navigate the fluidity of employees working remotely. Employers may also wish to consider any internal implications of entering into settlement or separation agreements that contain different terms depending on where an employee is based, with one set of provisions for California-based employees and another for others.
Offering an employee an agreement that does not comport with S.B. 331 has the potential to carry significant consequences for an employer. An employee could pursue a violation of either provision of law under the statute prohibiting an employer from including an unlawful provision in a contract, contained in the California Labor Code.8 And an employee could pursue such a claim under the Private Attorneys General Act (known as a “PAGA claim”), which permits stacking civil penalties and attorney’s fees.9 In addition, the section of S.B. 331 governing separation agreements and agreements made in exchange for a raise or bonus, or as a condition of employment or continued employment, specifies that any violation of the aforementioned prohibitions is an “unlawful employment practice.” This means that any violation of that provision is also subject to a private right of action that includes a right to seek compensatory and punitive damages.10
This new provision is reflective of the heightened public focus on issues involving workplace discrimination and harassment in recent years. And legislators are not the only ones pushing for change; companies are increasingly grappling with how to respond to pressure from a variety of different stakeholders on these issues, including employees, customers, shareholders and policymakers.