Revamping The No-Rehire Clause

Jackson Lewis P.C.

On September 11, 2020, Governor Newsom signed Assembly Bill 2143 (“AB 2143”), which adds further nuances to last year’s AB 749 regarding no-rehire clauses in settlement agreements.  AB 749 was part of the #MeToo inspired legislation, which prohibited no-rehire clauses in settlement agreements regarding employment disputes.  Prior to AB 749, it was common for employers to include no-rehire provisions in a settlement agreement.  When drafting AB 749, Assemblyman Mark Stone, argued that the “no-rehire clause punished the victims of discrimination or sexual harassment from continuing employment while the offender remains in the job.”  From AB 749, Code of Civil Procedure section 1002.5 was created, which states:

An agreement to settle an employment dispute shall not contain a provision prohibiting, preventing, or otherwise restricting a settling party that is an aggrieved person from obtaining future employment with the employer against which the aggrieved person has filed a claim, or any parent company, subsidiary, division, affiliate, or contractor of the employer. A provision in an agreement entered into on or after January 1, 2020, that violates this section is void as a matter of law and against public policy.

Good Faith

Now, AB 2143 adds a “good faith” component to the definition of “aggrieved person.” Before AB 2143, an “aggrieved person” was a person who “has filed a claim against the . . . employer in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process.”  AB 2143 amends Code of Civil Procedure section 1002.5(c)(2) to require the claim to have been filed in “good faith.”  The section, however, does not further define what exactly entails a claim to have been made in “good faith.”

Documentation of Sexual Assault or Harassment

 Prior to AB 2143, a no-rehire provision could be included if the employer made a good faith determination that the “aggrieved person” engaged in sexual harassment or sexual assault.  AB 2143 revises Code of Civil Procedure section 1002.5 (b)(1)(B) to require the employer’s good faith determination to be “documented.”

Ramifications for Employers

The “good faith” inclusion in the definition of “aggrieved person” provides a little bit – but not much – of leeway to employers in incorporating no-rehire provisions.  If this came to litigation, the burden of proof would be on the Plaintiff (i.e. the employee) to show that their claim against the employer was made in good faith.  Nonetheless, this further stresses the importance of documentation and proper investigation of an employee’s complaints in order to determine whether an employee’s complaint is made in “good faith” or not.  Further, Code of Civil Procedure section 1002.5 (b)(1)(B) stresses the importance for employers to document, and investigate, incidents in the workplace – especially when they involve sexual harassment or assault.

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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