Settlement and Severance Agreements

Prompted by the “Me Too” movement, California passed laws in 2019 that restricted the use of non-disclosure provisions in settlement agreements for claims involving allegations of sexual harassment, sexual assault or discrimination based on sex.

SB 331 significantly expands those restrictions to prevent the use of non-disclosure provisions in cases of alleged workplace harassment or discrimination based on any characteristic protected under the Fair Employment and Housing Act, not just those based on sex. This includes allegations of discrimination or harassment on the basis of:

  • 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.

While employees can’t be prohibited from discussing underlying facts of the case, employers can still use clauses that prevent disclosure of the amount paid to settle the claim. SB 331 will apply to settlement agreements entered on or after January 1, 2022.

SB 331 also limits the use of non-disclosure provisions in employment severance agreements, stating it is unlawful to include any provision that prohibits the “disclosure of information about unlawful acts in the workplace,” which is defined to include, but is not limited to, harassment, discrimination or any other conduct that the employee has reasonable cause to believe is unlawful.

It provides some sample language for employers to include in their agreements in connection with confidentiality/non-disclosure provisions: “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.”

The law also clarifies that it doesn’t prohibit use of a general release or waiver of all claims related to an employee’s separation, nor does it prohibit an employer from protecting the employer’s trade secrets, proprietary information or confidential information that doesn’t involve unlawful acts.

Employers should consult with their legal counsel about SB 331’s effects on the use of confidentiality/non-disclosure and non-disparagement provisions in their agreements.