United States: California Responds To #MeToo: Three New Laws Limit Contractual Confidentiality

California employers will soon have to heed a new crop of laws, born of the #MeToo movement, which will limit the terms permitted in employment-related contracts. What types of contracts, and what kinds of terms, you may ask? The answer, involving discussion of three separate bills adding three new California Code provisions, is a mouthful. But here goes.

  • Affected contracts include employment contracts, settlement agreements, and any other kind of contract that would try to prevent someone from testifying about alleged criminal conduct or sexual harassment.
  • The limitations include prohibiting waivers of the right to testify about alleged criminal conduct, including sexual harassment, as well as outlawing provisions that would prevent disclosure of information about sexual harassment and other illegal conduct in the workplace. The exact types of prohibitions depend on the kind of contract we are talking about.

The devil, of course, is in the details—and here the details are complex. Because prohibitions and permissions for certain kinds of contracts overlap somewhat, each case calls for careful analysis. The three bills in question, applying to agreements made on or after January 1, 2019, provide as follows:

  • AB 3109 (adding Civil Code § 1670.22) addresses contracts generally, and voids contractual provisions that would prevent a party from testifying about alleged criminal conduct or sexual harassment when the party has been compelled or requested to do so by lawful process.
  • SB 820 (adding Code of Civil Procedure § 1001) addresses agreements settling lawsuits or administrative complaints (as opposed to claims asserted in an internal complaint or demand letter), and voids contractual provisions that would prevent a party from disclosing "factual information" about sexual harassment or related retaliatory conduct.
  • SB 1300 (adding Gov't Code § 12964.5) amends the FEHA to address agreements required as a condition of employment, and makes it an unlawful employment practice to require employees to release FEHA claims or to keep mum about "unlawful acts in the workplace," unless the agreement is a negotiated resolution of a lawsuit, an agency complaint, or an internal complaint brought by an employee, in which case the employer can still get a release and require confidentiality concerning allegedly unlawful acts (to the extent the confidentiality provisions are not otherwise unlawful by means of the two new provisions discussed above).

Meanwhile, an amendment to the federal tax code, 26 U.S.C. §162(q), affects payments made or incurred with respect to sexual harassment settlements made after December 22, 2017. This federal development is beyond the scope of this post, but we mention it as a "heads up" item and refer you to our previous blog post here.

Contracts Generally

New Civil Code § 1670.22 is straightforward: the law frowns upon contracts by which employees agree not to testify about alleged criminal conduct or sexual harassment if they are officially requested to do so. This new statute seems a solution in search of a problem in that few employers have ever been so bold as to have employees agree to defy official requests to testify on these subject matters. But there it is.

Settlement Agreements

New Code of Civil Procedure § 1001, by contrast, can require significant changes in existing settlement practices. The law states that no provision in an agreement to settle a lawsuit or administrative complaint can prohibit the disclosure of "factual information" related to a claim filed in that proceeding if the information is "regarding" (1) sexual assault, (2) sexual harassment, (3) workplace harassment or discrimination based on sex, (4) failure to prevent sex discrimination or harassment in the workplace, or (5) retaliation for reporting sexual harassment or discrimination in the workplace.

But are some non-disclosure provisions still permitted in settlement agreements? Yes.

  • The "amount paid" to resolve any claim lawsuit or administrative complaint may still be kept confidential. The new California law is silent on whether non-monetary settlement terms may also be kept confidential.
  • If the claimant 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 claimant's identity.

NOTE: This carve-out does not apply where a government agency or public official is a party. In those instances, agreements cannot contain provisions keeping the claimant's identity confidential.

  • If an employee has merely filed an internal complaint or sent a demand letter regarding sexual harassment, discrimination, or retaliation—and has not filed a lawsuit or administrative charge—a settlement agreement may still contain standard confidentiality provisions.

Agreements for Raises, Bonuses, or New or Continued Employment

New Government Code § 12964.5—which expressly does not apply to negotiated settlement agreements—provides:

  • It is an unlawful employment practice to require employees—either as a condition of employment or in exchange for a raise or bonus—to sign any of the following provisions:
    • A statement that the employee does not have any FEHA claim against the employer or other covered entity.
    • A release of the right to pursue a FEHA claim or to notify a governmental entity of the claim.
    • Any agreement that prohibits disclosure of "information about unlawful acts in the workplace, including, but not limited to, sexual harassment."
    • This new FEHA provision carries more bite than the other new provisions, because a contract unlawful under the new FEHA provision is not only unenforceable but also can enable an aggrieved employee to sue for damages and other relief.

Workplace solution: Taken together, these new California laws should prompt a thorough review of employee agreements, release agreements, severance agreements, settlement agreements, contracts for continued employment, and even some Employee Handbook provisions. Some language may need to be added to certain agreements. Meanwhile, where the employer is settling a case that does not allege sexual harassment or assault or discrimination or retaliation, broader confidentiality and non-disparagement clauses remain as permissible as ever.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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