Employers Beware – Confidentiality and Non-Disparagement Provisions Face Further Restrictions

by James Kachmar
The Labor & Employment Law Blog

In 2018, in response to the #MeToo movement, California enacted Senate Bill 820 which added section 1001 to the California Code of Civil Procedure and prohibited employers from including provisions into settlement agreements that prevent the disclosure of factual information relating to claims of sexual assault, sexual harassment, failure to prevent harassment, harassment in a professional relationship, discrimination based on sex, or retaliation that had been made in connection with a civil lawsuit or administrative action.  Senate Bill 820 took effect on January 1, 2019.  Notably, it applied only to claims based on sex and not other forms of harassment or discrimination nor did it apply to settlement or severance agreements signed before an employee filed a lawsuit.

Senate Bill 331, which was signed by Governor Gavin Newsom on October 7, 2021, further restricts the use of confidentiality and non-disparagement provisions in employment agreements, including settlement and/or severance agreements.  Senate Bill 331 which takes effect on January 1, 2022, and applies to any agreements entered into on or after that date, amends section 1001 (which was added by SB 820), and amends section 12964.5 of the Government Code.

First, Senate Bill 331 amends section 1001 to apply to any act or claim of workplace harassment or discrimination and is not limited to just sexual harassment or sexual discrimination.  In essence, any employee that brings a civil lawsuit or files an administrative action for harassment or discrimination based on race, national origin, etc., cannot be prevented or restricted from disclosing factual information related to their claims of harassment or discrimination.  Section 1001 maintains the prior protections that allow the identity of the claimant to be protected and any facts that could lead to the discovery of the claimant’s identity.  It also maintains the provision that allows for the amount paid in settlement to remain confidential.  Any agreements that violate these provisions of section 1001 will be deemed void as a matter of law and against public policy.

Section 12964.5 of the Government Code is amended to prohibit an employer from requiring an employee to sign a release or non-disparagement agreement “denying the employee the right to disclose information about unlawful acts in the workplace” in exchange “for a raise or bonus or as a condition of employment or continued employment.”  Although non-disparagement and similar provisions may still be permitted, they must contain a disclaimer substantially similar to the following language: “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.”  Section 12964.5 also makes any agreement or document that is entered into in violation of this section to be unenforceable and against public policy.

Seeking to close a loophole that resulted from Senate Bill 820, section 12964.5 of the Government Code will now prohibit an employer from including “any provision that prohibits the disclosure of information about unlawful acts in the workplace” in any agreement related to the employer’s termination, such as in a separation or severance agreement.  To the extent such an agreement includes a non-disparagement provision, it should contain disclaimer language as set forth above.

The amendments to section 12964.5 make clear that it is not intended to prohibit employees from entering into a general release of claims against the employer, only that they cannot be restricted in making certain factual disclosures about such claims.

Senate Bill 331 also requires that when offering an employee a severance agreement, the employer “shall notify the employee that the employee has a 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.”  The new amendment makes clear that the employee may sign an agreement prior to the end of that time period as long as the employee’s decision “is knowing and voluntary and is not induced by the employer through fraud, misrepresentations or a threat to withdraw or alter the offer prior to the expiration of the reasonable time period.”

Given these new amendments, employers are cautioned to take several steps.  First, employers with pending or threatened claims of harassment and/or discrimination (based on something other than sex) may wish to see if they could be settled prior to January 1, 2022 to avoid some of the restrictions of Senate Bill 331.  In addition, employers should consult with legal counsel to review their current employment agreements, including any form severance or separation agreements, to ensure that they are not using form agreements after January 1, 2022 that will run afoul of this new legislation.