Over the past two years, we have followed the many bills that the California legislature has passed with the momentum of the #MeToo and #TimesUp movements. From last year’s omnibus sexual harassment bill (SB 1300), to the prohibition of confidentiality provisions in settlement agreements involving sexual harassment claims (SB 820), to the increase in time that employees would have to file claims under the Fair Employment and Housing Act (AB 9), these bills have been designed to increase protections for California workers.
Assembly Bill 749 (“AB 749”), introduced by Assemblymembers Mark Stone, Lorena Gonzalez, and Eloise Reyes, is another #MeToo-inspired bill meant to protect employees. It tackles “no rehire” provisions that are frequently found in settlement agreements. Employees who settle their claims against their employers are often required to agree that they will never again work for the same employer or its related entities. Such provisions are punitive and can have a devastating impact on an employee, forcing some to leave their field or severely limiting their future employment prospects. The use of “no rehire” provisions often leads to the perverse outcome where victimized employees are forced out of their jobs while harassers continue to be employed.[1]
AB 749, signed into law by Governor Newsom on October 12, 2019, prohibits and invalidates all provisions in settlement agreements that prevent workers from obtaining future employment with the settling employer or its affiliated companies. Through newly created Code of Civil Procedure section 1002.5, it makes such provisions in agreements entered into on or after January 1, 2020 void as a matter of law and against public policy. The bill is co-sponsored by the California Employment Lawyers Association and Equal Rights Advocates.
OVERVIEW OF EXISTING PROTECTIONS
Business and Professions Code section 16600 provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Courts have consistently interpreted this section to preclude the use of “non-compete” provisions.[2] However, courts have reached inconsistent conclusions with respect to section 16600’s applicability to “no rehire” provisions in settlement agreements, focusing on the degree to which the employee’s future employment prospects were limited.[3] AB 749 now creates a blanket prohibition on such provisions, regardless of the severity of the restraint on future employment.
FURTHER DETAILS ON AB 749
The heart of the bill is found in section 1002.5(a), which provides that:
An agreement to settle an employment dispute shall not contain a provision prohibiting, preventing, or otherwise restricting a settling party that is an aggrieved person from obtaining future employment with the employer against which the aggrieved person has filed a claim, or any parent company, subsidiary, division, affiliate, or contractor of the employer. A provision in an agreement entered into on or after January 1, 2020, that violates this section is void as a matter of law and against public policy.[4]
Section 1002.5(c) defines an “aggrieved person” as a person who has “filed a claim against the person’s employer in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process.”[5]
Employers and employees remain free to agree to “[e]nd a current employment relationship”—that is, to enter into a separation or severance agreement.[6]
In addition, employers are free to enter into “no rehire” agreements with employees who engaged in sexual harassment or sexual assault (the determination must be made in good faith).[7]
Finally, employer remains free to terminate an employee or to not rehire them “if there is a legitimate non-discriminatory or non-retaliatory reason for terminating the employment relationship or refusing to rehire the person.”[8]
CONCLUSION
Now that AB 749 is law, employees who stand up for themselves will no longer have to choose between settling their case and losing future employment prospects. We strongly supported this bill.
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Written by Ramit Mizrahi, Esq. and John L. Schwab, Esq.
[1] Assembly Committee on Judiciary Analysis (April 6, 2019), AB 749, p.1.
[2] See, e.g., Edwards v. Arthur Andersen LLP, 44 Cal.4th 937, 946 (2008); Metro Traffic Control, Inc. v. Shadow Traffic Network, 22 Cal.4th 853, 859 (1994); Morlife, Inc. v. Perry, 56 Cal.App.4th 1514, 1520 (1997).
[3] See e.g., Office of Senate Floor Analysis (August 21, 2019), AB 749, pp. 3-4 (discussing the inconsistent holdings in Brown v. State Personnel Bd. (Cal. Ct. App., Jan. 27, 2012, No. F059897) 2012 WL 274349, at *1 and Golden v. Cal. Emergency Physicians Med. Group (9th Cir. 2015) 782 F.3d 1083).
[4] See AB 749, §1002.5(a).
[5] See AB 749, §1002.5(c)(1).
[6] Id. at subd. (b)(1)(A).
[7] Id. at subd. (b)(1)(B).
[8] Id. at subd. (b)(1)(B)(2).
