New Limitations on Confidentiality Provisions in Settlement Agreements

In a previous article, I discussed the fact that separation agreements are not a “bulletproof solution” to mitigate the risk that a disgruntled former employee later sues the employer for discrimination or violations of California wage and hour laws because the employee can still bring later claims under the Private Attorneys General Act (“PAGA”). Under recent California Supreme Court decisions, an explicit waiver of these claims in a separation agreement was deemed unenforceable because such a provision disabled “one of the primary mechanisms for enforcing the Labor Code.” Thus, the employee could still sue for damages and penalties under PAGA.

In October 2021, Governor Gavin Newsom dealt another blow to employers seeking to insulate themselves from later litigation by signing California Senate Bill 331 (“SB 331”). Among other things, SB 331 expands the limitations on what confidentiality provisions may be included in settlement and separations agreements. Specifically, beginning January 1, 2022, no settlement or separation agreement may purport to prevent the employee from disclosing the nature of any workplace harassment or discrimination claims giving rise to the settlement or separation between the employer and the employee. Further, non-disparagement clauses denying the employee the ability to disclose information regarding these claims are likewise unlawful.

Previously, California Code of Civil Procedure Section 1001, and California’s Fair Employment & Housing Act (Government Code Section 12964.5) only prohibited settlement and separation agreement provisions that prevented the employee from disclosing allegations of workplace harassment and/or discrimination based on sex. SB 331 tightens these prohibitions significantly.

Further, all settlement/separation agreements must include provisions notifying the employee of their right to consult an attorney before signing the agreement and allow “no less than five business days” for such consultation to occur. If the employee signs before the expiration of five business days, the agreement will be invalid unless the employee’s acceptance of the agreement was “knowing and voluntary,” and is not induced by “fraud, misrepresentation, or a threat to withdraw” the offer.

Lastly, separation/settlement agreements that attempt to restrict the employee’s disclosure of information about “conditions in the workplace” must include 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 [the employee has] reason to believe is unlawful [emphasis added].

Once again, the California Legislature has further chilled the advantages of voluntarily entering into settlement/separation agreements to avoid unpleasant and contentious disagreements and possible litigation. Further, employers cannot count on the enforceability of non-disparagement clauses to insulate their businesses from sometimes spurious and untrue allegations by a former employee. Thus, the employer can never truly rest easy knowing they put definitive end to a contentious employment relationship.

At Poole Shaffery & Koegle, LLP, our staff has helped small businesses navigate these treacherous waters. If you need help setting up your employment agreements, employee handbooks, and separation agreements/releases, contact our offices to speak with an experienced attorney that specializes in helping businesses like yours to survive and thrive.

Ransom D. Boynton, Esq.

Attorney, Poole Shaffery & Koegle, LLP