California Disfavors Secrecy in Employment Settlement Agreements

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As 2022 rolls around, the State of California has been busy enacting new employment laws. One such law—known as SB 331—deserves special attention by employers as it implements important changes to the confidentiality of settlement agreements in the employment context.

What is SB 331?

Signed into law by Governor Newsom this month, SB 331 will bar certain types of non-disclosure provisions in settlement agreements that are executed between an employee and his or her employer. Non-disclosure provisions are clauses that prohibit an employee from disclosing the facts giving rise to his or her dispute with an employer. In particular, SB 331 will bar employers from adding provisions in settlement agreements that bar employees (current or former) from disclosing any information relating to any discrimination claim (e.g., religious, racial, ethnic, disability, sex, gender, or age) or harassment claim they have made. This means, for instance, that an employer will no longer be able to contractually prevent an employee from disclosing on Facebook, information about an employee’s discrimination claim.

If SB 331 sounds similar to a prior law that the State enacted a few years ago, that is because it is. In fact, SB 331 builds on the State’s prior law (known as SB 820) that prohibits secret settlement agreements in the employment context in sexual harassment cases. SB 331 expands that prior law’s confidentiality prohibition to non-sexual-harassment contexts.

But that is not all. SB 331 also bars employers from conditioning employment (or continuing employment) on an employee’s agreement to sign a non-disparagement clause that “has the purpose or effect of denying the employee the right to disclose information about unlawful acts in the workplace.” In fact, SB 331 requires an employer to temper any non-disparagement clause with the following sort of 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.”

What Will Not Change with SB 331?

Just as important as it is to know what SB 331 will change, it is important to know what will not change with SB 331. First, even under SB 331, an employer may generally prohibit an employee from disclosing the amount paid under a settlement agreement. Second, SB 331 will not prohibit the inclusion of non-disparagement clauses in negotiated settlement agreements when resolving a claim that has been filed in court, an administrative agency, arbitration, or through an employer’s internal complaint process. Third, nor does SB 331 limit an employer’s ability to protect trade secrets, proprietary information, or confidential information.

What Are The Next Steps?

While SB 331 comes into force on January 1, 2022, employers should start thinking about compliance in the coming year. Employers should start reviewing their settlement agreements for compliance with SB 331 and attempt to resolve any employee disputes before the close of 2021.

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This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.