Business Law

California Code of Civil Procedure Section 1002.5

The following is an examination of a new law to take effect on January 1, 2020:

California Code of Civil Procedure Section 1002.5
New Law Prohibits a Provision in Settlement Agreements Preventing Employees from Obtaining Future Employment with the Settling Employer

On October 12, 2019, Governor Gavin Newsom signed into law Assembly Bill 749 which created Code of Civil Procedure § 1002.5, effective January 1, 2020. The new statute prohibits a provision in a settlement agreement that prevents employees from obtaining future employment with the settling employer. Section 1002.5 applies to prohibit such “no-rehire” provisions in settlement agreements in civil actions. As a result, any provision in a settlement agreement entered on or after January 1, 2020 that prevents employees from obtaining future employment with the settling employer will be deemed void as a matter of law and against public policy.

The new law is an offspring of the #Metoo movement and views “no-rehire” provisions as a retaliation against employees who asserted discrimination, harassment or retaliation based claims against the employer. Prior to section 1002.5, the “no-rehire” provisions were routinely included in settlement agreements to prevent employees from working at any place owned, operated or affiliated with the employer. Now, such provisions will be void as a matter of law. However, section 1002.5 does not prevent the employer and employee from agreeing to end a current employment relationship. Section 1002.5 also does not apply when the employer made a good faith determination that the settling employee engaged in sexual harassment or sexual assault. In addition, section 1002.5 does not require the employer to continue to “employ or rehire a person” if there is a legitimate non-discriminatory or non-retaliatory reason for terminating the employment relationship or refusing to rehire the employee.

The clear impact of this new law is that employers may not use settlement agreements to prevent an employee from working for them in the future. As such, parties must ensure that settlement agreements entered on or after January 1, 2020 do not include these “no-rehire” provisions unless one of the exceptions listed in the new law is applicable.

These materials were written by the Business Litigation Committee by Philip J. Bonoli of Brutzkus Gubner (pbonoli@bg.law).  Editing contributions were provided by Michael Shklovsky of Anderson Zeigler (mshklovsky@andersonzeigler.com).  

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