January 19, 2022
California has seen a flurry of legislative activity over the last couple of years focused on protecting the rights of employees entering separation or settlement agreements with employers. Employers who have not updated their separation or severance agreement templates in the last few years should consider whether updates to their agreements are needed. This is especially true in light of SB 331 which Governor Gavin Newsom signed into law on October 7, 2021. SB 331, or the “Silenced No More Act,” introduces additional restrictions on settlement agreements, non-disparagement agreements and separation agreements executed with employees in California after January 1, 2022.
Background – Recent Legal Developments
California has made a number of changes to requirements for separation and settlement agreements over the past few years, including but not limited to:
SB 331 – Key Changes
Against this legal backdrop, SB 331 has introduced additional restrictions that employers should keep in mind when entering into settlement or separation agreements with employees in California.
Building on the protections included in SB 820, SB 331 expanded SB 820’s prohibition on provisions that prevent the disclosure of facts to include all facts related to all forms of harassment, discrimination, and retaliation—not just those related to sexual assault, sexual harassment, or sex discrimination. Just as with SB 820, parties can agree to prevent the disclosure of the settlement payment amount, and the identity of the claimant can be protected where requested by the claimant.
Non-Disparagement Covenants and Separation Agreements
Consistent with SB 1300, SB 331 prohibits an employer from requiring an employee to agree to a non-disparagement agreement or other document limiting the disclosure of “information about unlawful acts in the workplace” in exchange for a raise or bonus, or as a condition of employment or continued employment. SB 331 also prohibits an employer from including in any separation agreement with an employee or former employee any provision that prevents the disclosure of “information about unlawful acts in the workplace” which includes, but is not limited to, information pertaining to harassment or discrimination or any other conduct that the employee has reasonable cause to believe is unlawful.
Effective January 1, 2022, any non-disparagement or other contractual provision that restricts an employee’s ability to disclose information related to conditions in the workplace must include, in substantial form, 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.”
Finally, SB 331 also provides that any separation agreement with an employee or former employee related to an employee’s separation from employment that includes a release of claims must provide: (i) notice that the employee has the right to consult an attorney regarding the agreement and (ii) a reasonable time period of at least five (5) business days in which to consult with an attorney. An employee may sign the agreement before the end of such reasonable time period so long as such employee’s decision 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 such reasonable period of time or by providing different terms to the employees who sign such an agreement before the expiration of such time period. The SB 331 requirements do not apply to a negotiated agreement to resolve an underlying claim filed by an employee in court, before an administrative agency, in arbitration, or through an employer’s internal complaint process.
Conclusion and Next Steps
SB 331 represents the latest step taken by California intended to protect employees’ rights by restraining employers from preventing the disclosure of information regarding certain workplace conditions.
When evaluating separation or severance agreement templates, employers should consider whether the agreements:
Employers should navigate these requirements with care. Compliance with California’s multifaceted legal protections for employees and former employees will require careful drafting. Employers should consider seeking the assistance of legal counsel to refresh templates prior to entering into settlement or separation agreements in California.
The following Gibson Dunn attorneys assisted in preparing this client update: Tiffany Phan, Florentino Salazar, Sean Feller, Jason Schwartz, and Katherine V.A. Smith.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Labor and Employment practice group, or the following:
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