New Legislation Impacting Settlement and Severance Agreements

tom wolfe
Tom Wolfe, Managing Partner of Moore Brewer Wolfe Jones Tyler & North.

On Jan. 1, 2022, Senate Bill (SB) 331[1] went into effect, continuing California’s trend in recent years of restricting the use of confidentiality provisions in settlement agreements involving claims of sexual assault, sexual harassment, and sex discrimination.

Nondisclosure

Prior to SB 331, California Code of Civil Procedure §1001 already prohibited and made void as a matter of law any provision in a settlement agreement that prevents a party from disclosing factual information, related to a claim filed in a civil action or a complaint filed in an administrative action, regarding, among other things: (1) sexual assault; (2) sexual harassment; or (3) workplace harassment or discrimination based on sex, failure to prevent such an act, or retaliation against a person for reporting such an act. This applies to settlement agreements entered into on or after January 1, 2019.

SB 331 has expanded the above prohibition as follows:

  • It clarifies that the prohibition is against any provision in a settlement agreement that prevents or restricts the disclosure of such factual information; and
  • It expands the prohibition beyond preventing or restricting the disclosure of factual information regarding workplace harassment or discrimination based on sex to include all forms of prohibited workplace harassment or discrimination, as well as the failure to prevent such an act, or retaliation against a person for reporting such an act. This will impact all settlement agreements entered into on or after Jan. 1, 2022.

Prohibited harassment or discrimination under the Fair Employment and Housing Act (FEHA) includes harassment or discrimination on the basis of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or veteran or military status. It also prohibits harassment or discrimination because a person has opposed any practices forbidden under FEHA or because the person has filed a complaint, testified, or assisted in any proceeding under FEHA.

Code of Civil Procedure §1001(c) continues to exempt from the above prohibition a provision that shields the identity of the claimant and all facts that could lead to the discovery of the claimant’s identity, including pleadings filed in court, and allows such a provision to be included within a settlement agreement at the request of the claimant, unless a government agency or public official is a party to the settlement agreement. It also continues to allow a provision that prevents the disclosure of the amount paid in settlement of a claim.

Nondisparagement

Government Code §12964.5 previously made it an unlawful employment practice for an employer, in exchange for a raise or bonus, or as a condition of employment or continued employment, to require an employee to sign:

  • A release of a claim or right regarding employment discrimination, harassment, or retaliation for reporting or opposing employment discrimination or harassment; or
  • A nondisparagement or other agreement that denies the employee the right to disclose information about unlawful acts in the workplace, including harassment or discrimination.

SB 331 expanded this section to include severance agreements. Under SB 331, it is an unlawful employment practice for an employer or former employer to include any provision that prohibits the disclosure of information about unlawful acts in the workplace in any agreement related to an employee’s separation from employment

In addition, any nondisparagement or other contractual provision that restricts an employee’s ability to disclose information related to conditions in the workplace must now include the following language, in substance:

“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.”

Any provision that violates this requirement is considered against public policy and unenforceable.

A separation or severance agreement may still include a general release or waiver of all claims, provided that the release or waiver is otherwise lawful and valid.

Right to Consult an Attorney

Government Code §12964.5 was also amended to provide that an employer that offers an employee or former employee an agreement in connection with their separation, including a severance agreement, must notify the employee that he or she has the right to consult an attorney regarding the agreement and provide a reasonable period of time within which to do so, not less than five (5) business days (not calendar days). To protect the employer, these two items should be clearly stated within the agreement itself.

An employee may sign the agreement before the reasonable period of five (5) or more business days has passed as long as the employee’s decision to do so is knowing and voluntary. This means that the employee’s decision is not induced by the employer through fraud, misrepresentation, a threat to withdraw or alter the offer prior to the expiration, or by providing different terms to employees who sign sooner.

Government Code §12964.5 does not apply to a negotiated settlement agreement to resolve an underlying claim filed by an employee in court, before an administrative agency, in an alternative dispute resolution forum, or through an employer’s internal complaint process. It does not prohibit a provision that prevents the disclosure of the amount paid in a severance agreement. Nor does it prohibit an employer from protecting its trade secrets, proprietary information, or confidential information not involving unlawful acts in the workplace.

Steps for Credit Unions

Credit unions are encouraged to work with their legal counsel to review any settlement or separation agreement, or any other document containing a nondisparagement provision, to ensure that it is in compliance with the latest legal developments. If relying on any type of template, it should be promptly reviewed by counsel.

 Article by Tom Wolfe, Managing Partner of Moore Brewer Wolfe Jones Tyler & North.

 

[1] Senate Bill 331 (2021) Ch. 638; Leyva.

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