California’s New Restrictions on Severance Agreements, Non-Disparagement and Confidentiality Agreements

Topics: Discrimination, Harassment & Retaliation, New Laws & Legislation, Personnel Policies and Procedures

On October 7, 2021, Governor Newsom enacted SB 331 to put up additional restrictions on employers offering severance agreements and settling claims alleging harassment, discrimination or retaliation based on purported violations of the Fair Employment and Housing Act.  The new law, which is effective January 1, 2022, expands California’s current legal restrictions against a settlement agreement preventing disclosure of information regarding sexual assault, sexual harassment, workplace harassment or discrimination based on sex, or retaliation against a person for reporting such acts.

The new law creates an unlawful employment practice against employers that prevent disclosure of information about unlawful acts of harassment, discrimination or retaliation in the workplace in severance agreements, rendering such agreements unenforceable and against California’s public policy.  Further, non-disparagement agreements must, effective 2022, include language relating to the employee’s right to disclose information about unlawful acts in the workplace substantially similar to: “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.”

While confidentiality of the settlement amount remains permitted, the amendment to Government Code section 12964.5 requires employers offering severance agreements with general releases to advise employees to consult with counsel and to provide a reasonable period of time, not less than five days, to do so.  Employees will have the right to sign a severance agreement in less than five days as long as the shortened period is knowing and voluntary and not induced by a threat to withdraw the offer in less than five days.  

California employers should be sure to discuss the use of any current form severance agreements, non-disparagement or settlement agreements with your favorite CDF attorney before the end of the year and before using them in 2022 to ensure compliance.