California passed a wave of new laws in 2018 relating to the #metoo movement, many of which prohibit confidential settlement agreements or disclosure of allegations related to sexual harassment in the workplace. This Friday’s Five post is a review of five areas impacted by these prohibitions of certain terms in settlement agreements, which illustrate the need for employers to stay informed about the new requirements that apply to their company and industry:
1. Civil Procedure Code section 1001 – Limits on confidentially clauses
California’s Stand Together Against Nondisclosure (STAND) Act prohibits certain terms in agreements with employees. The law voids any confidentiality provisions in agreements settling claims for sexual harassment under Civil Code section 51.9, workplace sexual harassment or discrimination, failure to prevent harassment, and retaliation for reporting sexual harassment or discrimination.
This law applies to agreements entered into on or after January 1, 2019 involving claims filed in court or filed in an administrative action. The law permits the claimant to request a term in the settlement that his or her identify remain confidential, including all facts that could lead to the discovery of his or her identity, including pleadings filed in court.
The law does not apply to pre-litigation settlements. The law also permits parties to keep the amount of the settlement confidential (unless a government agency or public official is a party to the settlement agreement).
2. Civil Code section 1670.11 – Right to testify about sexual harassment
Civil Code section 1670.11 makes any provision in a contract or settlement agreement entered on or after January 1, 2019 void and unenforceable if it waives a party’s right to testify in an administrative, legislative, or judicial proceeding about alleged criminal conduct or alleged sexual harassment.
3. Government Code section 12964.5 – Employer may not release FEHA claims unless it involves a “negotiated settlement agreement”
Section 12964.5 of the Government Code makes it an unlawful employment practice for an employer to require and employee to sign a release of a claim or right under the Fair Employment and Housing Act (“FEHA”). In addition, the law prohibits an employer from requiring an employee to sign a nondisparagement agreement or other document that denies the employee the right to disclose information about unlawful acts in the workplace, including, but not limited to sexual harassment. The law took effect on January 1, 2019.
The law makes any document violating its terms unenforceable.
The law does not apply to “a negotiated settlement agreement” to resolve an underlying claim filed by an employee in court, before an administrative agency, alternative dispute resolution forum, or through an employer’s internal complaint process. “Negotiated” is defined as an agreement that “is voluntary, deliberate, and informed, provides consideration of value to the employee, and that the employee is given notice and an opportunity to retain an attorney or is represented by an attorney.”
4. The Tax Cuts and Jobs Act – Limit on tax deductions for payments and attorney’s fees related to confidential settlements or payments
Enacted on December 22, 2017, the Tax Cuts and Jobs Act changed the Internal Revenue Code to prohibit tax deductions as an ordinary and necessary business expense for any settlements or payments “related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement.” The law also disallows any deductions for attorney’s fees related to the confidential settlement or payment. See 26 U.S.C. § 162(q).
5. Review standard forms to ensure compliance
Employers should review their documents and forms to ensure compliance with these requirements. For example, employers should review and potentially update employment documents, which may include the following:
- severance agreements
- standard release of claims, and settlement agreements
- non-solicitation agreement
- confidentiality agreements
- nondisclosure agreements
- employee handbook procedures and policies