California Imposes Significant New Restrictions on Severance and Settlement Agreements

On October 7, 2021, California Governor Gavin Newsom signed Senate Bill (SB) No. 331 into law. SB 331 is known as the “Silenced No More Act.” It amends California Code of Civil Procedure Section 1001 and the California Fair Employment and Housing Act (FEHA) and imposes significant new restrictions on severance and settlement agreements. The law takes effect on January 1, 2022, and it is not retroactive.

Key Provisions

The following are SB 331’s key provisions:

Time to Consider the Agreement

An employer must give an employee or former employee at least five days to consider a severance agreement the employer offers the employee. The employee may sign it sooner than five days if the employee wishes.

Right to Consult an Attorney

An employer also must notify an employee or former employee to whom the employer offers a severance agreement that the employee has the right to consult an attorney regarding the severance agreement.

Disclosure of FEHA Claims

A settlement agreement may not prevent or restrict an individual from disclosing factual information relating to all claims of harassment, discrimination, or retaliation under the FEHA, including claims based on race, sexual orientation, religion, color, national origin, ancestry, disability, medical condition, and age. This provision builds upon 2018’s SB 820 (the “Stand Together Against Non-Disclosure Act”), which prohibited settlement agreements from restricting individuals from disclosing factual information relating to claims based on sex.

Disclosure of Unlawful Workplace Acts

A severance agreement may not prohibit a separated employee from disclosing information about unlawful workplace acts unless

• the provision is part of a settlement agreement to resolve an employment discrimination-related claim that the employee has filed in court, “before an administrative agency, in an alternative dispute resolution forum, or through an employer’s internal complaint process”; and
• “the employee [was] given notice and an opportunity to retain an attorney or [was] represented by an attorney.”

Nondisparagement Provisions

A nondisparagement provision in a severance or settlement agreement that releases a FEHA claim or right must notify the employee that the agreement does not prohibit the employee from discussing or disclosing unlawful acts in the workplace. SB 331 requires that the agreement include language along the following lines: “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.”

Other Provisions

SB 331 also clarifies that a severance agreement may

• include “a general release or waiver of all claims”;
• prohibit the disclosure of “trade secrets, proprietary information, or confidential information that does not involve unlawful acts in the workplace”; and
• require that the amount of severance paid remain confidential.

Key Takeaways

Employers may wish to revise their settlement and severance agreement templates now in preparation for the law’s January 1, 2022, effective date. Employers also may wish to consider whether they wish to resolve and obtain settlement agreements for current litigation in 2021 so that SB 331 does not apply to those agreements.