01.20.2022 | Newsletters

Lots of Changes Required in Employee Agreements

By Charles R. Hellstrom

Arbitration Agreements

In the last edition of Employment Law News (Q4, 2021), we highlighted the Ninth Circuit’s lifting of the injunction in Chamber of Commerce v. Bonta, (9th Cir. 2021) F.4th —, 2021 WL 4187860, which allowed Labor Code § 432.6 to go into effect. This means that requiring applicants or employees to sign an arbitration agreement, or taking any adverse action against them for refusing to sign, is now a violation of the Labor Code (though the agreement itself is not voided by the statute). Further review of this decision by the Ninth Circuit is currently pending in the Supreme Court.

Another new ruling addresses the arbitration of Private Attorney General Act (PAGA) claims. The law has been clear for several years that employee PAGA claims are not subject to employee arbitration agreements. The recent decision in the case of Najarro v. Superior Court (2021) 70 Cal. App. 5th 871 now makes it advisable for employers to explicitly state in their arbitration agreements that the agreement does not govern PAGA claims brought by the employee.

In Najarro, the court decided that an arbitration agreement that did not specifically “carve out” PAGA claims was substantively unconscionable. If a court finds an agreement “unconscionable,” then the agreement can be void. Employers can lessen the risk of their arbitration agreement being found void by including express “carve out” language.

Settlement Agreements

SB 331, known as the “Silenced No More Act,” expands the law enacted in 2019 that prohibits settlement agreement provisions preventing the disclosure of factual information relating to all forms of sexual harassment and discrimination claims that are filed in a civil or administrative action.

This prohibition now applies to factual information relating to claims of harassment or discrimination based on any “protected category” that are filed in a civil or administrative action. This means that it does not apply to claims settled prior to the commencement of a formal court or agency action. Fortunately, it is permissible to require the settlement dollar amount to be kept confidential.

Non-Disparagement Agreements

Employers may not require employees to sign a non-disparagement agreement or other document that denies employees the right to disclose information about unlawful acts in the workplace, as a condition of employment or continued employment, or in exchange for a promotion, bonus, or continued employment.

A non-disparagement provision in such an agreement or document must include the following (or something substantially similar):

“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.”

Since the statute provides this model language, we recommend that you use it verbatim rather than hope a court will agree the language you drafted yourself is “substantially similar.”

Severance Agreements

You are likely familiar with the 21-day “waiting period” that employers must provide to employees when seeking a waiver of age discrimination claims. Now, all employees being offered a severance agreement must be given a waiting period. Employers must provide a “reasonable time period of not less than five business days” for an employee to consult an attorney before signing the agreement. For employees with the 21-day waiting period, the five days will run concurrently.

Employees may sign earlier but only if their signing earlier is “knowing and voluntary,” meaning the employer did not induce an earlier signature by “fraud, misrepresentation, or a threat to withdraw or alter the offer,” or by offering different terms to employees who sign earlier. So, for example, employers cannot offer to increase the severance payment in exchange for an earlier signature or threaten to reduce the severance payment if the employee takes the whole five days.

In addition, employers must notify employees offered a severance agreement that they have the right to consult an attorney.

These provisions do not apply to “negotiated settlement agreements” that resolve employee claims made in a lawsuit, administrative proceeding, an alternative dispute resolution forum, or an employer’s internal complaint procedure.

Like employee settlement agreements, the amount of a severance payment may still be kept confidential.

Related practice team: Labor and Employment

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