AB 749: No-rehire law may be contentious

With so much focus on Assembly Bill 5 codifying Dynamex and the extension of the statute of limitations for Fair Employment and Housing Act claims, some may have overlooked another significant new employment law -- AB 749. Under new California Code of Civil Procedure Section 1002.5, companies will be barred from including provisions in settlement agreements that prohibit, prevent or otherwise restrict employees from obtaining future employment with the employer as well as any parent companies, subsidiaries, divisions, affiliates, or contractors.

No rehire provisions have been included in virtually every employment related settlement agreement for decades. Those provisions have prohibited employees from ever reapplying for a job with their employers anywhere in the country, and in some cases have allowed employers to automatically terminate workers who were inadvertently rehired following the settlement.

AB 749 is a well-intentioned response to #MeToo. Employees with legitimate grievances of harassment and other claims against their employers should not be punished for asserting their rights. It is also a response to broad clauses prohibiting employees from reapplying not only to their former employers, but also to subsidiaries, related entities and even entities that are subsequently acquired without any geographical or time restrictions. Legislators viewed these clauses as potential restraints on trade, prohibiting some workers (such as those working at large companies or those with unique skills) from gaining new employment in their chosen occupations.

The prohibition covers any worker who has filed a claim against his/her employer with an administrative agency, in court, in an alternative dispute resolution forum or through an employer's own internal complaint process. There are exceptions, however. The new law doesn't apply to severance agreements offered to employees upon termination as long as the severance isn't offered to settle a dispute and no claim has been asserted. The law doesn't require an employer to rehire a person if there is a legitimate non-discriminatory or non-retaliatory reason for terminating the employee.

Many employers are concerned about potential unintended consequences. No-rehire provisions are virtually universal for a reason. Companies routinely settle claims to avoid the cost and uncertainty of litigation and to achieve finality. They typically don't want to reinstate a worker who has just sued them, particularly when they believe the claim was dubious. Employers also fear that AB 749, as drafted, could result in repeated rounds of litigation. Imagine an all-female dental practice that hires, then fires, its first male dentist. He was fired, they say, because his work was not up to their standards; he claims he was fired because of his gender. He reapplies six months later and then brings a new action alleging retaliation because he is not rehired. In the new suit, the company again asserts he was fired for legitimate non-discriminatory reasons; he reasserts his claim that he was fired for gender discrimination.

In short, the law will open the way for victims of harassment, assault and discrimination to pursue claims without burning employment bridges. The new prohibition may, however, complicate settlement negotiations due to fears of repeated claims. Employment lawyers will undoubtedly attempt to craft language to mitigate against that risk.

Eve Wagner is a mediator and arbitrator with Signature Resolution with extensive background in employment law.