New Amendment to Existing Law Strengthens Rights of California Employees Who Enter Into Settlement Agreements with Their Employers

The majority of disputes that arise in the workplace and proceed to litigation find their resolution not at trial, but in a settlement—agreed to by the employer and the employee and hopefully beneficial to both.

Because so many cases end in settlement, the terms of the settlement agreement become crucial for ensuring a just outcome that is fair to both parties. This is especially so because the power dynamic in negotiations between employers and their employees is often skewed in favor of the employer.

Civil Code Section 1002.5’s Employee Protections for Future Work Opportunities

California law includes certain protections for employees who enter into settlement agreements with their employers.

Under Section 1002.5 of the California Civil Code, a settlement agreement generally cannot prohibit or restrict the employee from obtaining future employment with the employer or any parent company, subsidiary, division, affiliate, or contractor of the employer. (Cal. Code Civ. Pro. § 1002.5.)

Section 1002.5 embodies the Legislature’s decision that it would be unfair for an aggrieved employee to have to forego future work opportunities in order to resolve some harm he or she has suffered in the workplace.

Section 1002.5’s Exception for Employees Found to Have Engaged in Sexual Misconduct

One exception to Section 1002.5’s general prohibition is where the aggrieved employee is found to have engaged in sexual harassment or assault. This exception exists because the Legislature recognizes sexual harassment or assault as serious crimes and it believes those crimes are a legitimate reason for an employer to determine an employee is ineligible for rehire.

It is important, however, for any accusation of harassment to be grounded in facts and not in retaliatory animus. An employer who has been accused of misconduct should not be able to limit the aggrieved employee’s future employment prospects with manufactured claims of sexual misconduct.

New Law Strengthens Section 1002.5’s Employee Protections

In order to protect employees from this possibility, Subsection (b)(1)(B) formerly provided an exception to Section 1002.5’s general prohibition where: “the employer has made a good faith determination that the person engaged in sexual harassment or sexual assault.”

Assembly Bill (AB) 2143, passed by the Legislature and recently signed into law by Governor Newsom, strengthens these protections. Section 1002.5 now states that its general prohibition against barring future employment does not apply where: “the employer has made and documented a good faith determination, before the aggrieved person filed the claim that the aggrieved person engaged in sexual harassment, sexual assault, or any criminal conduct.”

By requiring the employer to have documented a claim of sexual harassment or assault before the aggrieved employee filed their own claim against the employer, Section 1002.5 now significantly decreases the chance that false or manufactured claims of sexual misconduct will be used to diminish the value of an employee’s claim against their employer.

Conclusion

This amendment has two positive consequences: (1) Employers now have an additional incentive to take claims of sexual misconduct seriously and to investigate those claims and make note of them as soon as they are brought to the employer’s attention; and (2) A higher number of aggrieved employees who bring claims against their employer will be able to settle their claims without foregoing any future employment opportunities.