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California Expands Prohibitions on Settlement and Non-Disclosure Agreements

On October 7, 2021, California Governor Gavin Newsom signed legislation (SB 331) expanding the California Code of Civil Procedure section 1001 and Government Code section 12964.5 which places restrictions on settlement and non-disclosure agreements between employers and employees.

What Does the Law Do?

Under the law, employers will be prohibited from entering into settlement agreements that restrict employees from disclosing information related to a civil claim or an administrative action pertaining to:

  • Workplace harassment or discrimination;
  • Failure to prevent an act of workplace harassment or discrimination; or
  • Retaliation against someone for reporting or opposing harassment or discrimination.

Additionally, employers will be prohibited from requiring employees to sign non-disclosure agreements or other documents that deny an employee the right to disclose information about unlawful acts in the workplace.

The law also requires that employers:

  • Include language specified in the statute explaining that the non-disclosure agreement does not prevent the employee from discussing information about unlawful acts in the workplace; and
  • Notify employees that they may consult with counsel before entering into any such agreement.

However, employers are not prohibited from entering into agreements that:

  • Protects the identity of the employee (if the employee requests this protection); or
  • Keeps the amount of severance an employee receives confidential.

Employers are also not prohibited from protecting their trade secrets, proprietary information, or other confidential information that does not involve unlawful acts in the workplace.

The law applies to agreements that are entered into on or after January 1, 2022.

Next Steps for Employers

California employers that routinely rely on these types of clauses in their settlement and severance agreements should consider updating them before the law takes effect on January 1, 2022, and work with their legal counsel to develop updated agreements that will be compliant with the amended law.

HR Works, headquartered in Upstate New York, is a human resource management outsourcing and consulting firm serving clients throughout the United States for over thirty years. HR Works provides scalable strategic human resource management and consulting services, including: affirmative action programs; benefits administration outsourcing; HRIS self-service technology; full-time, part-time and interim on-site HR managers; HR audits; legally reviewed employee handbooks and supervisor manuals; talent management and recruiting services; and training of managers and HR professionals.