Governor Newsom Signs New Bill Barring NDAs

By:  Brittany H. Rothe-Kushel
Partner, Bradford & Barthel, Los Angeles

A new bill barring nondisclosure agreements from settlements in cases featuring discrimination, harassment, or retaliation is going to force employers and defendants to reconfigure how they craft their settlement releases and addenda.

In drafting settlement agreements, the resolving parties often include voluntary resignation letters and addenda that include non-disclosure agreements and a waiver and release of claims against the employer.

The purpose of these agreements is to protect the employer from further litigation once the workers’ compensation claim resolves. The inclusion of voluntary resignations and employer-related addenda require one to consider both California workers’ compensation statutes and California labor and employment law.

As we know, the California workers’ compensation system is a “no fault” system. However, if an applicant is terminated for reporting a workers’ compensation injury, then an applicant may file a Labor Code 132a claim and assert that the employer retaliated against them for filing a claim.  Defendants are strongly discouraged from  terminating applicants after they file a workers’ compensation claim, as an employer could face criminal prosecution or misdemeanor charges if the termination was found to be retaliatory.

When workers’ compensation claims settle, many of the agreements include voluntary resignations and employer-related addenda as a condition of settlement.  Applicants’ attorneys often will not agree to the employer-related addenda. In fact, the vast majority of workers’ compensation judges will refuse to approve a settlement if the voluntary resignation or employer addenda are submitted to the WCAB.

On Oct. 7, 2021, Gov. Gavin Newsom signed a new bill into law (SB 331) that could uproot these addenda in workers’ compensation settlements executed on or after Jan. 1, 2022.

SB 331, which is named the “Silenced No More Act,” took effect on Jan. 1, 2022, and voids provisions within a non-disclosure agreement entered into on or after that date that prevents or restricts an employee from disclosing factual information on any type of harassment, discrimination and retaliation.

The law was presented in response to the greater “Me Too” movement and builds on the prior act SB 820, also known as the STAND (Stand Together Against Non-Disclosure) Act, which California passed as law 3 years ago in 2018.

SB 331 amends the California Code of Civil Procedure Section 1001 to expand the ban of confidentiality provisions in settlement agreements executed on or after Jan. 1, 2022 for all acts of workplace discrimination, not just sex discrimination. This law opens the floodgates to challenge many non-disclosure agreements entered into by applicants and defendants at the time of settlement.

Typically, workers’ compensation judges will not sign settlement agreements if they include these voluntary resignations and non-disclosure agreements. So what usually occurs is that defendants send applicants a voluntary resignation letter and employer addenda which outlines, inter alia, general release of claims against the employer as a condition of resigning and settling a workers’ compensation claim.

Inherent within these acts are possible age discrimination, race discrimination, and gender discrimination legal actions that the employee/applicant is agreeing to release, waive, and essentially forgo the right to sue the employer for discrimination as a condition of signing the workers’ compensation settlement agreement.

In these agreements, it is the employer’s intent to reach finality of litigation once the case-in-chief resolves in the workers’ compensation claim. In other words, once the workers’ compensation claim resolves, so should any other employment-related litigation in regards to discrimination, harassment, or unlawful activity resolve (with the exception of lien litigation of course).

Now with SB 331, defendants and employers must address these implications in settlement agreements.

Does that mean that defendants must get rid of employer addenda and voluntary resignations altogether? Not exactly.

First, SB 331 does not apply retroactively. The law applies to agreements entered into on or after Jan. 1, 2022.

Second, employers may still include non-disparagement clauses or similar provisions in the agreements as long as there is concrete language that notes the applicant’s right to disclose information about unlawful acts in the workplace. Without this language, the settlement provision would be unenforceable and deemed against public policy.

For example, an employer can prevent a (former employee) from disclosing trade secrets, or from saying defamatory things about their business that are clearly untrue.

It is therefore imperative that defendants review SB 331 carefully before drafting voluntary resignation and employer addenda that previously included nondisclosure agreements, or NDAs.

Also remember, that this subdivision does not prohibit the inclusion of a general release or waiver of all claims in an agreement related to an employee’s separation from employment provided that the agreement includes a specific “carve-out” to provide the employee with the right to discuss unlawful workplace conduct that the employee has “reason to believe” took place. In essence, any agreement whose goal is to deny an employee the right to disclose unlawful workplace conduct is unenforceable and against public policy.

With this new legislation, the parties should assess all of their active claims, and pay particular attention to claims that include allegations of workplace discrimination, gender discrimination, racial discrimination, and retaliation. 

Starting on Jan. 1, 2022, employers must be strategic in their pre-litigation approach particularly with claims that involve discrimination and/or harassment. It is also imperative that employers review their current non-disclosure agreements, waivers/releases and resignations to ensure that the provisions are not null and void.  It would still be good practice to ensure that these employer-related agreements do not violate public policy and support the employer’s position for finality.

Brittany Rothe-Kushel, Esq. is a workers’ compensation defense attorney at Bradford & Barthel’s Los Angeles location, where she aggressively defends against workers’ compensation claims and helps train clients on the latest legal defense strategies. Please feel free to contact Brittany at brothekushel@bradfordbarthel.com or at (310) 981-5004.