New California Law Restricts Use of Confidentiality Clauses and Requires New Notice Requirements for Employment Settlement Agreements

March 3, 2022 |

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California employers now need to carefully review the use of confidentiality clauses and how they provide employment separation agreements that include a waiver of claims under the Fair Employment Housing Act (“FEHA”) in light of recent changes enacted under Senate Bill 331 (“SB 331”). This bill was signed into law by Governor Newsom last year and became effective on January 1, 2022, as applied prospectively to any agreements entered into on or after that date. Below is a summary of SB 331’s impact on employment settlement agreements.

Expanded Restrictions on Confidentiality/Non-Disclosure Agreements of FEHA Claims

In response to the “#MeToo” Movement’s exposure of sexual harassment claims that were silenced through the use of non-disclosure agreements and confidentiality clauses, the California Legislature passed SB 820 in 2018 to address this issue. Applied prospectively to any agreements entered into on or after January 1, 2019, SB 820 created a new Code of Civil Procedure section 1001 that prohibited confidentiality provisions in settlement agreements for civil actions and administrative complaints for claims of sexual assault, sexual harassment, workplace harassment or discrimination based on sex, and retaliation for reporting or opposing harassment or discrimination based on sex.

SB 331 expands this prohibition on confidentiality provisions to now apply to any type of workplace harassment, discrimination, and related retaliation claims protected under FEHA, not just those based on sex. This includes harassment or discrimination based on race, color, national origin, ancestry, religion, disability, medical condition, familial status, gender, age, and all other protected characteristics, as well as retaliation for reporting or opposing all such harassment or discrimination.

Non-Disparagement Clauses and Separation Agreements

Government Code section 12964.5 currently prohibits an employer from requiring an employee to enter into a waiver of FEHA claims or to agree to a non-disparagement clause that would prohibit the disclosure of unlawful acts in the workplace in exchange for a promotion, bonus, or continued employment. SB 331 expands this prohibition to now include any type of non-disparagement clause for current employees or as part of a separation agreement that prohibits an employee from disclosing information about any type of harassment or discrimination or other conduct that an employee reasonably believes is unlawful in the workplace unless the agreement includes the following carve-out 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.

However, SB 331’s revisions to Government Code section 12964.5 also clarifies that two types of confidentiality provisions are not prohibited in employment agreements that include a waiver of FEHA claims:

  • A confidentiality requirement regarding the severance amount paid; and
  • Confidentiality provisions that aim to protect the employer’s trade secrets, proprietary information, or other confidential information that does not involve unlawful acts in the workplace.

New Requirement for Separation Agreement Offer with FEHA Waiver of Claims to Remain Open for At Least Five Business Days

Separate and distinct from the new restrictions on confidentiality and non-disparagement provisions, SB 331 also revises Government Code section 12964.5 to require any separation agreement that involves a FEHA waiver of claims to provide notice to the affected employee of their right to consult an attorney. Following this, the offer of a separation agreement must remain open for a reasonable amount of time of at least five (5) business days to provide the employee time to consult with an attorney. The affected employee may accept the agreement before the end of the five business days only if doing so was “knowing and voluntary” and not a result of improper inducement by the employer, such as threats to withdraw or alter the terms of the separation agreement that was offered.

Conclusion – Employers Need to Review Separation Agreements for SB 331 Compliance

California employers should keep SB 331’s new restrictions on confidentiality/non-disparagement clauses and its new notice requirements for separation agreements in mind when entering into settlement or separation agreements that include a FEHA waiver of claims to ensure compliance with these new restrictions. In addition, the restrictions under Government Code section 12964.5 do not apply to a negotiated settlement agreement with a FEHA waiver of claims to resolve an underlying claim filed by the employee in court, before an administrative agency, in arbitration, or through an employer’s internal complaint process. As a result, employers should consult with legal counsel to ensure that any such agreements prepared are consistent with these new restrictions and requirements.

Boutin Jones’ Employment Law Group attorneys are available to assist employers to ensure compliance with SB 331, to provide legal advice on the impacts of this new law, and to answer any other questions you may have regarding this new law or the preparation of separation agreements with a FEHA waiver of claims.