California Imposes New Restrictions On Employee Settlement And Non-Disparagement Agreements

On Oct. 7, 2021, California’s Governor Newsom signed into law SB 331, the “Silenced No More Act” (the “Act”) which, in part, broadly prohibits – and voids – certain non-disclosure clauses in employee settlement agreements. The Act becomes effective on Jan. 1, 2022, and amends and expands SB 820, also known as the California Stand Together Against Non-Disclosures Act (“STAND Act”).

Specifically, the Act adds additional limitations and requirements on employers with respect to (1) the use of non-disclosure clauses in settlement agreements; (2) the use of non-disparagement restrictions in certain employment agreements; and (3) notice requirements associated with employee separation agreements.  We are going to briefly review each of those categories below.

Settlement Agreements

First, we need a little background before we start reviewing the Act’s new restrictions for settlement agreements.  The STAND Act, which was effective on January 1, 2019, prohibits restrictions in settlement agreements that prevent the disclosure of information regarding sexual assault, sexual harassment, discrimination, or retaliation based on sex, related to any claim filed as part of a lawsuit or with an administrative agency.

The Act expands the STAND Act by prohibiting non-disclosure provisions that restrict an employee from sharing information regarding workplace harassment, discrimination, retaliation, or failure to prevent such harassment or discrimination, based upon any characteristic protected under California law (i.e., not just sex-based discrimination). This means that as of January 1, 2022, California employers will be prohibited from crafting settlement agreements that restrict an employee’s ability to disclose information related to a claim alleging discrimination, harassment, or retaliation, based upon 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.

However, the Act does not prohibit non-disclosure terms concerning the amount paid by the employer to settle any such claim.

Non-Disparagement Restrictions and Agreements

The Act restricts California employers from putting a non-disparagement agreement or most non-disparagement clauses in separation agreements in place with an employee unless the following language is included in the agreement:

“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.”

Additionally, while the Act provides that it does not “prohibit an employer from protecting the employer’s trade secrets, proprietary information, or confidential information,” any such provisions that prohibit disclosure of information about conditions in the workplace will need to be accompanied by the above language to ensure that those obligations remain enforceable.

Notice Requirement for Separation Agreements

The Act also requires that employers offering a separation or severance agreement to an employee notify the employee that they have “the right to consult an attorney regarding the agreement and shall provide the employee with a reasonable time period of not less than five business days in which to do so.”

Therefore, all separation agreements with employees and former employees should (1) include the above disclaimer if the separation agreement restricts an employee’s or former employee’s ability to disclose information related to conditions in the workplace; (2) instruct employees that they have the right to consult an attorney regarding the proposed separation agreement; and (3) instruct employees that they have at least five business days to consider the agreement.

Key Takeaways

California Employers should carefully consider these changes in the law and take immediate steps to do the following:

• Identify whether any pending employee claims allege something besides sex-related harassment, discrimination, or retaliation. If so, the employer should work to resolve those matters before January 1, 2022, or, be prepared to utilize any resulting agreements that are drafted in accordance with the Act.
• Ensure that all employee agreements and separation agreements that include non-disclosure obligations also incorporate the disclaimer above so that the employee is not prohibited from discussing or disclosing information about unlawful acts in the workplace.
• Review all of your company’s employee agreements to ensure they are in compliance with the Act and ready for use following January 1, 2022.