On October 7, 2021, Governor Newsom signed SB 331 to place additional restrictions on employers offering severance agreements and settling employment claims alleging harassment, discrimination or retaliation based on purported violations of the Fair Employment and Housing Act (“FEHA”). The new law, which is effective January 1, 2022, expands California’s current legal restrictions under California Code of Civil Procedure Section 1001. Currently, CCP section 1001 prohibits various confidentiality and non-disparagement clauses in settlement agreements, specifically those that would prevent disclosure of factual information relating to claims of sexual assault, sexual harassment, workplace harassment or discrimination based on sex, or retaliation against a person for reporting such acts.
SB 331 expands on these existing prohibitions. Under SB 331, effective January 1, 2022, the prohibition on confidentiality applies to any type of workplace harassment or discrimination claims, not just those based on sex. The new law thus makes it an unlawful employment practice for employers to prevent disclosure of information about unlawful acts of harassment, discrimination or retaliation in the workplace in “any agreement related to an employee’s separation from employment,” rendering such agreements unenforceable and against California’s public policy. Further, non-disparagement and confidentiality provisions must include language relating to the employee’s right to disclose information about unlawful acts in the workplace substantially similar to: “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.”
While confidentiality of the severance amount remains permitted, the amendment to Government Code section 12964.5 requires employers offering severance agreements with general releases to advise employees to consult with counsel and to provide a reasonable period of time, not less than five days, to do so. Thus, beginning in 2022, all employees (including employees under age 40) must be provided with a minimum of five days to consider an offered severance/separation agreement. Of course, an employee may elect to sign a severance agreement in less than five days, as long as the shortened period is “knowing and voluntary” and not induced by the employer’s “fraud, misrepresentation, or threat to withdraw or alter the offer.”
The bill’s use of the terms “any agreement related to an employee’s separation from employment” may be construed to mean that it can also apply to settlement agreements related to an employee’s separation. However, Section 12964.5(d) clarifies the restrictions do not apply to a “negotiated settlement agreement to resolve an underlying (FEHA) claim 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.”
Also notable for employers, SB 331 clarifies that any limitations on confidentiality in releases and agreements related to separation do not apply to provisions protecting the employer’s trade secrets, proprietary information, or other confidential information.
Employers will need to be mindful of these changes to the law when entering into severance and settlement agreements on or after January 1, 2022. Employers with questions regarding SB 331 or for assistance with revisions to employee severance or separation agreements may contact the authors or their usual employment counsel at AALRR.
