Does AB 749 Prohibit Compromise and Releases with Resignations?

By Tom Richard,  Managing Partner, RTGR Law, LLP

AB 749 was signed into law and took effect on January 1, 2020. The law places certain restrictions on employment resignation agreements.  Some employers are asking if the law prohibits asking for a resignation and agreement not to re-apply as a condition of entering into a C&R Agreement.

It is important to note that the new Code of Civil Procedure Sec. 1001 created by AB 749 does not prohibit a voluntary resignation or separation.  In other words, it is still legal to quit a job.  Further, subsection (b)(1)(A) provides that parties can still have an agreement to “[e]nd a current employment relationship.” Subsection (b)(2) also states that the new law does not require an employer to continue to employ a person if there is a legitimate non-discriminatory or non-retaliatory reason for terminating the employment relationship. Arguably, a mutual agreement to separate from employment and settle a Workers’ Compensation case by C&R (as opposed to continuing to be employed and to settle instead by Stipulations) is a legitimate non-discriminatory and non-retaliatory reason for terminating the employment relationship.

On the other hand, AB 749 does bar any provision of an agreement entered into on or after January 1, 2020, as part of a C&R or otherwise, prohibiting, preventing, or otherwise restricting the employee/applicant from obtaining future employment with the employer or any parent company, subsidiary, division, affiliate, or contractor of the employer. That provision in the agreement is void as a matter of law. California Code of Civil Procedure Sec. 1002.5(a).  Because the provision is void, it should be avoided since it has no legal effect.  Additionally, AB 749 seems to create a public policy against such agreement provisions.  Therefore, they should not be included in any proposed agreements in order to avoid accusations of making unlawful requests in violation of public policy, which itself may be actionable under California Labor Code section 132a, FEHA or elsewhere.

Update:  In a recent unpublished 4th District Court of Appeal case, Kennedy v. MUFG Union Bank, it was held that a voluntary resignation as part of a workers’ compensation settlement warranted summary judgement in favor of the employer, in a civil case alleging wrongful termination brought by the employee/claimant. We may be able to take from this that while AB 749 precludes enforcement of resignation clauses that preclude re-hiring, as noted above, the voluntary resignation itself still may foreclose subsequent civil lawsuits premised upon a theory of termination (wrongful or otherwise), rather than resignation.