California Imposes New Restrictions on Employee Settlement and Nondisparagement Agreements Effective Jan. 1, 2022

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

Specifically, SB 331 imposes additional limitations and requirements on employers with respect to (1) the use of nondisclosure clauses in settlement agreements; (2) the use of nondisparagement terms in employment, settlement and separation agreements; and (3) notice requirements associated with employee separation agreements.

Settlement Agreements

By way of background, the STAND Act, effective Jan. 1, 2019, already prohibited clauses in settlement agreements that restrict the disclosure of factual information regarding sexual assault, sexual harassment, or discrimination or retaliation based on sex, related to any claim filed in a lawsuit or with an administrative agency.

SB 331 expands upon the STAND Act and prohibits nondisclosure provisions that restrict an employee from sharing factual 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 or harassment). This means that as of Jan. 1, 2022, California employers will be prohibited from using nondisclosure clauses in settlement agreements, if and to the extent such clauses would restrict the employee’s ability to disclose facts related to a claim filed in court or with an administrative agency alleging discrimination, harassment, retaliation, or a failure to prevent such conduct 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, while SB 331 prohibits restrictions on the ability of employees to share factual information related to such claims, it does not prohibit nondisclosure terms concerning the amount paid by the employer to settle a claim.

Nondisparagement Restrictions and Agreements

SB 331 also prohibits California employers from requiring—as a condition of employment, continued employment or in exchange for receiving a raise or bonus—an employee to (1) “sign a release of a claim or right” (including a statement that employee does not possess any claim or injury against the employer); or (2) sign an nondisparagement agreement or other document that prohibits the employee from disclosing information about unlawful acts in the workplace.

However, SB 331 does not prohibit the use of nondisparagement provisions altogether with employees, but does require, when using such provisions, the inclusion of the following language in the nondisparagement clause at issue:

“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.”

SB 331 also prohibits most nondisparagement clauses in separation agreements, unless the clause contains the above language.

Moreover, while SB 331 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 should be accompanied by the above language to ensure that even the nondisclosure of confidential information obligations in the relevant agreement remain enforceable.

Notice Requirement for Separation Agreements

When offering a separation or severance agreement to an employee, SB 331 also requires employers to notify the employee that the employee “has 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.” Employees may sign the agreement prior to the end of the five business days “as long as the employee’s decision to accept such shortening of time is knowing and voluntary and is not induced by the employer through fraud, misrepresentation, or a threat to withdraw or alter the offer prior to the expiration of the reasonable time period, or by providing different terms to employees who sign such an agreement prior to the expiration of such time period.”

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

SB 331 is a significant and broad expansion of the STAND Act, passed in 2018 in response to the #MeToo movement. California joins New Jersey in prohibiting nondisclosure agreements that restrict the disclosure of factual information relating to discrimination, retaliation or harassment claims.

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

• Identify whether any pending employee claims alleging non-sex-related harassment, discrimination or retaliation exist, and whether the employer’s preferred resolution of those claims would involve nondisclosure provisions preventing the disclosure of facts relating to non-sex-related conduct. Employers who seek to resolve claims, even meritless claims, early to preserve resources will be unable to impose such nondisclosure obligations relating to any form of harassment, discrimination or retaliation prohibited under California law beginning Jan. 1, 2022.
• Ensure that all employee agreements and separation agreements that include nondisclosure obligations also incorporate the above-referenced disclaimer that the employee is not prohibited from discussing or disclosing information about unlawful acts in the workplace.
• Notify all employees and former employees to whom you offer separation agreements expressly in the agreement that they have the right to consult an attorney regarding the agreement and have no less than five business days in which to do so.