The end of non-disparagement clauses in employment settlement agreements?

Many employment settlement agreements include a non-disparagement clause that prohibits one party from spreading lies or rumors and disparaging the other party. A pending California bill (Senate Bill 331) may threaten the validity of non-disparagement clauses, and further restrict the use of Fair Employment and Housing Act (FEHA) releases.

Background

In 2018, in the wake of the Harvey Weinstein scandal, the California Legislature enacted a few bills that sought to curtail “aggressors” with “fat wallets” from preventing dissemination of information regarding sexual harassment in the workplace.

Senate Bill 820 added Civil Code Sec. 1001, which voids any provision within a settlement agreement that prevents disclosure of factual information related to a claim filed in a civil action or a complaint filed in an administrative action regarding workplace harassment or discrimination based on sex, sexual harassment, and  sexual assault.

Senate Bill 1300 added Gov’t Code Sec. 12964.5, which prohibits a release of FEHA claims and non-disparagement clause that prevents an employee from disclosing information about sexual harassment and other unlawful acts in the workplace, in exchange for a raise or a bonus or as a condition of continued employment.

Senate Bill 331

One of SB 331’s goals is to expand SB 820, and prohibit settlement agreements from including confidentiality provisions related to all forms of harassment and discrimination under FEHA, including based on race, religion, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, familial status, sex, gender, gender identity, gender expression, age, sexual orientation, or veteran or military status.

Another goal of SB 331 is to expand the non-disparagement prohibition (as implemented by SB 1300) to separation agreements. Per SB 331, a non-disparagement clause may not be included in an agreement with a current/former employee unless the agreement states: “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.”

Further, SB 331 requires separation/settlement agreements to (1) notify the employee of the employee’s right to consult an attorney regarding the agreement, and (2) provide the employee with no less than five business days to do so.

What’s Next

If signed into law, SB 331 will limit employers’ ability to include broad confidentiality and non-disparagement clauses in settlement and separation agreements with employees. This is another action by the California Legislature to curtail employers’ ability to resolve employment disputes confidentially and permit public criticism by employees.

Employers who are not yet familiar with their obligation to take steps to prevent harassment and discrimination in the workplace, including to provide harassment prevention training and conduct workplace investigations as needed, are encouraged to contact an employment defense attorney as soon as possible.

Nicholas Kanter and Tal Burnovski Yeyni represent employers in harassment, discrimination, wage and hour, and other claims.