Governor Newsom recently signed into law SB 331 to impose a number of new restrictions on employment settlement, separation, and nondisclosure agreements. Here’s an overview of the new requirements, which apply to agreements entered into on or after January 1, 2022:

First, for settlement agreements involving claims of harassment or discrimination based on any protected class or retaliation, the new law bars confidentiality provisions that prevent an employee from disclosing information regarding the claim. This is an expansion of current law that prohibits such confidentiality clauses in settlement agreements pertaining to claims of sexual assault, sexual harassment, or sex discrimination. Consistent with existing law, employers can still prevent the disclosure of amounts paid in settlement. Also, at the employee’s request, an agreement may include a provision that shields their identity and facts that could lead to the discovery of their identity, except if a government agency or public official is a party to the settlement agreement.

Second, SB 331 prohibits confidentiality and non-disparagement provisions in employment separation and nondisclosure agreements that have the purpose or effect of restricting disclosure of information about harassment, discrimination, or other workplace conduct the employee believes is unlawful. Furthermore, employers must include the following language in a non-disparagement or other contractual provision that restricts an employee’s ability to disclose information related to conditions in the workplace: “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.” These requirements do not apply to a negotiated settlement agreement to resolve an underlying claim filed by an employee in a court, administrative agency, alternative dispute resolution forum, or the employer’s internal complaint process.

Third, the new law requires that for all employment separation agreements (except negotiated settlement agreements as noted above), the employer must (1) notify the employee that the employee has a right to consult an attorney regarding the agreement, and (2) provide the employee with a reasonable time period of not less than five business days in which to do so. An employee may sign the agreement prior to the end of the five-day period if the decision to do so is knowing and voluntary and not induced by the employer through fraud, misrepresentation, a threat to withdraw or alter the offer, or by providing different terms if an employee signs prior to the expiration of such time period.

In light of these new provisions, employers should promptly review template agreements to ensure compliance as of January 1, 2022. Agreements that do not comply may be unenforceable.

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Photo of Carolyn Rashby Carolyn Rashby

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. Carolyn’s approach is preventive, while recognizing the need to set clients up for the best possible defense should disputes arise.…

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. Carolyn’s approach is preventive, while recognizing the need to set clients up for the best possible defense should disputes arise.

As a senior member of Covington’s Institutional Culture and Social Responsibility Practice Group, Carolyn has co-led significant investigations into workplace culture, DEI issues, and reports of sexual misconduct and workplace harassment.

As an employment lawyer with over two decades of experience, Carolyn focuses on a wide range of compliance and regulatory matters for employers, including:

  • Conducting audits regarding employee classification and pay equity
  • Advising on employment issues arising in corporate transactions
  • Strategic counseling on a wide range of issues including discrimination and harassment, wages and hours, worker classification, workplace accommodations and leave management, performance management and termination decisions, workplace violence, employment agreements, trade secrets, restrictive covenants, employee handbooks, and personnel policies
  • Drafting employment contracts and offer letters, separation agreements, NDAs, and other employment agreements
  • Advising on employee privacy matters, including under the California Consumer Privacy Act
  • Providing guidance on use of AI in the workplace and development of related policies
  • Leading anti-harassment and other workplace-related trainings, for employees, executives, and boards

Carolyn also works frequently with the firm’s white collar, privacy, employee benefits and executive compensation, corporate, government contracts, and cybersecurity practice groups to ensure that all potential employment issues are addressed in matters handled by these groups.