Expansion of Prohibitions on Non-Disclosure and Non-Disparagement Agreements

SB 331: Code of Civil Procedure § 1001 (amended); Government Code § 12964.5 (amended)

Effective January 1, 2022, the “Silenced No More Act” will prevent settlement agreements from restricting the disclosure of underlying facts of workplace harassment, discrimination, or retaliation on any protected bases (see Government Code §§ 12940, 12955 for protected characteristics) related to a claim filed in a civil action or a complaint filed in an administrative action. Previously, the law only prohibited such clauses for settlement agreements regarding sexual assault, sex-based discrimination, sexual harassment, or retaliation for reporting sex discrimination or harassment. Agreements may continue to include provisions prohibiting disclosure of the settlement amount and lawfully protected confidential employer information (e.g., trade secrets). Claimants may continue to request provisions that shield their identity or facts that may lead to their identity.

The law further restricts non-disparagement agreements as a condition of bonuses, raises, employment, or as part of a severance plan. Such agreements may not deny an employee’s right to disclose information about unlawful acts in the workplace, with the legislation specifically enumerating discrimination and harassment. Non-disparagement or related provisions must include language to the substantial effect: “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” (emphasis added). Employers may still include a lawful and valid general release or waiver of all claims in a separation agreement.

Finally, the law requires employers offering an employee or former employee a separation agreement to notify the employee that they have the right to consult with an attorney. Employers must offer no less than five business days to do so. Employees may sign before the time period ends, but such a decision must be “knowing and voluntary” and not improperly induced by the employer (e.g., with fraud or threat).

Employer Pro Tips:

• Act Before 2022: This law does not go into effect until January 1, 2022. If employers have pending matters with an employee alleging discrimination on a basis other than sex, employers may still include non-disclosure provisions as part of a settlement package before the end of the year.
• Review and Update Settlement Agreements: Consult with legal counsel to ensure that standardized terms in your settlement agreements conform to the law.
• Consider Litigating Meritless Claims: While the risk of litigation remains prevalent, this law may change the calculus of some employers. Previously, employers were often motivated to dispose of meritless claims with a non-disclosure agreement as part of that strategy. Now that aggrieved employees may speak openly about allegedly unlawful acts in the workplace regardless of settlement terms, employers may consider taking these matters to trial to vindicate their reputations.
• Keep Settlement Amounts Confidential: While this law grants aggrieved employees substantially more freedom to discuss the alleged facts of their cases, employers may continue to prevent disclosure of settlement amounts. Employers should do so to prevent granting putative future plaintiffs that valuable information as a bargaining tool.
• Employees Signing Without Counsel May Later Contest the Agreement: The law allows employees to enter a settlement agreement without counsel and before the end of a “reasonable time period” (no less than five business days). However, such a decision must be “knowing and voluntary,” and “not induced by the employer through fraud, misrepresentation, or a threat,” among other restrictions. Here, other areas of the law are instructive. These terms leave substantial room for later litigation where employees will post hoc challenge the voluntariness of such agreements. Any waivers of the right to counsel should be written and drafted by expert legal counsel.

New Requirements for Arbitration Providers; Arbitration Fees Generally Due upon Receipt

SB 762: Civil Code § 1657.1 (added); Code of Civil Procedure § 1281.97 (amended); § 1281.98 (amended)

This bill expands upon employee and consumer arbitration requirements provided in SB 707 (2019). In California, employers must pay the costs of arbitration. Existing law requires these costs paid within 30 days of the due date, with failure to pay resulting in material breach, default, and a waiver of the right to compel arbitration. Now, once an employee or consumer meets the filing requirements of arbitration, the arbitration provider must “immediately” supply an invoice of any required fees to “all parties by the same means on the same day,” detailing costs and due dates. Absent an express provision in the arbitration agreement, the invoices shall be due upon receipt. All parties must agree to any extension of due dates. These changes are designed to expedite the arbitration process and put all parties on notice as to exactly when an employer has material breached.

Finally, this legislation requires that any time “specified in a contract of adhesion for the performance of an act required to be performed shall be reasonable.” This is broad language, but its addition in SB 762 suggests that the drafter of an arbitration agreement cannot provide themselves an unreasonably long time to pay required fees, thus defeating the purpose of the bill.

Employer Pro Tips:

Update Arbitration Agreements to Conform: As the drafter, build in an express provision specifying the number of days (a reasonable period of time) for the Company to pay the invoice from the arbitration provider, to avoid a situation where the invoice would be due upon receipt.

• Timely Pay Arbitration Fees: Where the drafting party fails to pay within the applicable timeline, that party is in material breach of the arbitration agreement. The employee may then withdraw from arbitration and proceed to court or compel arbitration with the drafting party facing a sanction of attorney’s fees and costs. This bill is designed to target strategic delays through a failure to pay or unilateral requests for extensions.
• Anticipate Further Anti-Arbitration Legislation: Anti-arbitration bills in California are a perennial tradition. In comments to this legislation, the bill’s author unapologetically criticizes the one-sided nature of the agreements, along with the federal courts that uphold them. The bill’s sponsor was an association of employment plaintiffs’ attorneys. Companies relying on arbitration agreements should expect such agreements to be the subject of continued Legislative scrutiny.

Procedural Changes to DFEH Enforcement & Expansion of Employer Record Retention Requirements

SB 807: Government Code §§ 12930, 12946, 12960, 12961, 12962, 12963.5, 12965, 12981, 12989.1 (amended)

Beginning January 1, 2022, employers will be required to retain personnel records for applicants and employees for four years from the date the records were created or the date the employment action was taken. When a complaint is filed, employers will be required to retain the records until the matter reaches its final resolution, either because the entire administrative and court dispute process has concluded, or because the employee’s statute of limitations has expired.

Additionally, the bill makes procedural changes to how the Department of Fair Employment and Housing (DFEH) enforces California’s civil rights laws. These changes include: (1) authorizing DFEH to appeal court decisions regarding the scope of the agency’s power to compel cooperation with its investigations; (2) pausing otherwise applicable statutes of limitation, including retroactively without reviving lapsed claims, while DFEH is conducting investigations or attempting mediation; (3) expanding the methods through which DFEH may serve process of a verified civil rights complaint to include methods authorized in other civil legal disputes; and (4) allowing DFEH to file civil rights actions in any county if the civil action includes class or group allegations on behalf of DFEH.

Employer Pro Tips:

The longer record retention period aims to match the filing period which was enacted under AB 9 of 2019. The longer retention period aids the employer’s ability to investigate and ensures sufficient information exists to defend the company against any potential complaints.

• Update – Update internal policies to reflect the longer retention period. Train employees responsible for retaining records on the new procedures quickly, preferably before the start of the 2022. Note any auto-delete functions on company communications.
• Train – Train all employees on how to promptly report any complaints of discrimination, harassment and retaliation in the workplace. Ensure that appropriate personnel understand how to promptly respond, including issuing legal hold notices when threatened with litigation.
• Document – Instruct all managers and supervisors how to properly and thoroughly document all employee write-ups, performance reviews, adverse personnel actions, etc. Review your document retention systems. Consider retaining outside counsel to conduct a privileged investigation into any allegation of discrimination, harassment or retaliation.

Expansion of CFRA Leave to Include Parents-in-Law and Modifications to DFEH Small Employer Mediation Program

AB 1033: Government Code §§ 12945.2 and 12945.21 (amended)

This law adds onto 2020’s expansion of the California Family Rights Act. First, the law will allow employees to take leave to care for “designated persons.” The designated person can be identified at the time of leave and does not need to be named before then. Additionally, the employee can designate a different designated person every 12 months.

Second, the law adds “parent-in-law” to the list of individuals with serious health conditions for whom employees can take leave to care for.

Third, for employers with between 5 and 19 employees, the law alters the notice provisions of the small employer family leave mediation pilot program. The alteration requires the employee alleging a violation of job protected leave to contact the department’s dispute resolution division prior to filing an action. It also clarifies the duty of an employee or employer to request mediation and dictates the appropriate timelines for the process.

Employer Pro Tips:

Given the significant expansion of the CFRA in 2020, it is important to continue any review of policies relevant to these updates.

• Review any current policies containing the list of approved individuals qualifying for family leave and update to add “parent-in-law” as a covered individual.
• Update any CFRA policies to include the ability to for employees to take leave to care for designated persons and explain they may designate a new person every 12 months.
• If you are an employer with between 5 and 19 employees, further consult the legislation or outside counsel to understand the procedural strategies that may aid in protecting against any potential claims of violation of job protected leave.