New Requirements for California Severance and Settlement Agreements

A number of new laws took effect on January 1, 2019 which affect severance agreements and other settlement agreements entered into in California.

No Bars on Preventing Employees from Testifying in Official Proceedings

Section 1670.11 was added to the California Civil Code prohibiting language in contracts and settlement agreements that bars anyone from testifying in administrative, legislative or judicial proceedings concerning alleged criminal conduct or sexual harassment. An employer is not required to include any specific language to comply with this requirement. However, in the event your severance agreement contains language that could possibly be read as barring the acts above, language should be added that mirrors the language of Section 1670.11.

No Bars on Disclosing Factual Information Related to Sexual Harassment, Assault and Discrimination in Official Proceedings

Section 1001 was added to the Code of Civil Procedure prohibiting non-disclosure terms in settlement agreements that prevent “the disclosure of factual information related to a claim filed in a civil action or a complaint filed in an administrative action,” if the claim relates to acts of sexual assault, sexual harassment, and workplace harassment or discrimination based on sex. The law does not appear to prohibit confidentiality clauses in separation agreements where parties are settling any issues in the pre-litigation phase, such as where a demand letter has been sent but no claim has been filed with an administrative agency or in court.

However, the amount paid to resolve any claim may still be kept confidential under the statute. Additionally, if the employee in the settled lawsuit or administrative complaint requests confidentiality, the parties may agree to prevent the disclosure of all facts regarding alleged sexual harassment or discrimination (including court filings) that would lead to the discovery of the employee’s identity.

Employee Releases of FEHA Claims Prior to Separation of Employment Must Meet Additional Requirements

Section 12964.5 was added to the Fair Employment and Housing Act (FEHA), making it an unlawful employment practice for an employer, in exchange for a raise or bonus, or as a condition of employment or continued employment, to require an employee to sign a release of a claim under the FEHA (for example, harassment or discrimination claims based on age, race, ethnicity, sex or disability, among other characteristics), unless the agreement is “negotiated” as defined by the statute.

Severance agreements are usually provided after the employee has been terminated or at the time of termination, in which case the statute would not apply. However, employers will sometimes negotiate a severance agreement prior to an employee’s separation to work out a voluntary separation. It is unclear based on the statute whether this would count as a release “as a condition of continued employment.” Therefore, such settlement agreements should comply with the exception for “negotiated settlement agreements” under the statute, meaning that “the agreement is voluntary, deliberate, and informed, provides consideration of value to the employee, and that the employee is given notice and an opportunity to retain an attorney or is represented by an attorney.”

Civil Code § 1542 Waiver Language Amended

Section 1542 of the Civil Code was amended to make slight changes to the wording of the language that should be quoted in release agreements. Unless a release agreement cites to Section 1542 and states that the employee is waiving unknown claims, employees can retain the right to bring claims they did not know of when signing the release.

Employer Action Items:

Taken together, these new California laws should prompt a thorough review of severance and other settlement agreements. Language may need to be added, revised or omitted to comply with the above new laws. Please let us know if we can help.