Legislative Update: New Limitations on Settlement and Nondisclosure Agreements in California
The Silenced No More Act (SB 331) was recently signed into law by Governor Newsom to continue the California legislature’s trend toward empowering workers to share experiences of job-related mistreatment. Specifically:
- SB 331 prohibits the use of non-disclosure agreements (NDAs) to settle employment and housing-related legal claims involving unlawful harassment, discrimination, or related retaliation of any kind, with limited exceptions when requested by the complainant.
- It also prohibits the inclusion, in an employment severance agreement, of terms that prohibit the separated employee from discussing unlawful conduct at their former workplace, unless the separated employee agrees to those terms under specified conditions designed to safeguard the separated employee’s rights.
- The measure applies prospectively to agreements entered into on or after January 1, 2022.
An NDA is a provision in a contract that binds the parties to secrecy regarding information specified in the contract. NDAs have been a hot topic in the past few years as they bound to silence such high-profile victims as U.S. Olympic gymnast McKayla Maroney against her team doctor accused of sexual abuse and also Harvey Weinstein’s victims. To stop the perpetuation of sexual harassment through NDAs, the author of SB 331, Senator Connie Leyva, had started her fight back in 2018 in the wake of the #MeToo movement with the STAND (Stand Together Against Nondisclosure) Act (SB 820) which prohibited the inclusion of NDAs in cases of sexual harassment and sexual discrimination. Senator Leyva has now continued her mission with the success of SB 331, extending SB 820’s basic rule to all other forms of harassment and discrimination under California’s Fair Employment and Housing Act: those 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 bill in 2018, SB 1300, made it an unlawful employment practice for an employer to require an employee, in exchange for a raise or bonus, or as a condition of employment or continued employment, to sign any document denying the employee the right to disclose information about unlawful acts in the workplace, unless that agreement was reached under certain conditions meant to safeguard the worker’s right. Thus, SB 1300 made it more difficult for employers to use NDAs to obtain silence from their current workers regarding unlawful activity in the workplace. However, SB 1300’s reach did not extend to departing workers. SB 331 now fills that gap, by applying to non-disparagement provisions in severance agreements.
The noble goal of employee protection with the 2018 bills and newly enacted SB 331 comes at a cost to employers, however. Employee settlement agreements and severance releases now need to be crafted with more care keeping the new legislation in mind. Although non-disparagement provisions as a condition of employment or in settlement agreements may still be used, a non-disparagement provision that restricts an employee’s ability to disclose information related to conditions in the workplace must include language akin to the following: “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.” Thus, employers may want to consider updating settlement and severance agreements before the January 1, 2022 effective date.
If you need assistance in updating your settlement and severance agreements for the new year, contact the experts at McKague Rosasco LLP.
