AB 2143: ‘No rehire’ provisions in settlement agreements

Assembly Bill 2143 aims to bring new changes to AB 749, which prohibited "no-rehire" provisions in settlement agreements. AB 749, which went into effect last January, restricted the right of an employer to include a no-rehire provision in employee workplace dispute settlement agreements. It also stated that employers cannot have any provision in settlement agreements that in the future would forbid or limit the aggrieved person from working with the employer or one of its associated entities. The law defines an "aggrieved person" as anyone who has filed a claim against the employer in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer's internal complaint process.

AB 749, signed in October 2019, was a #MeToo-inspired bill meant to address the problems associated with no-rehire provisions and protect employees. When employees file a claim against an employer for harassment in the workplace, employers oftentimes include a no-rehire provision to ensure that the aggrieved person is not allowed to work for their company in the future as part of the settlement offer.

AB 749 prohibits settlement agreements from containing a no-rehire provision that restricts an employee from obtaining future employment with the employer or any of its affiliates. The bill also clarified that an employer is not required to continue to employ or rehire a person if the employer has made a good faith determination that the person engaged in sexual harassment or sexual misconduct. Proponents of the bill argued that it was necessary to protect victims of workplace harassment, claiming the clause hurt the victims of discrimination or sexual harassment, and stopped them from continuing employment while the perpetrators remained on the job. Some employers argued that AB 749 had the potential to open the door to further disputes between an employer and former employee who had resolved their case. Governor Gavin Newsom signed AB 2143 in an attempt to address some of these concerns.

AB 2143, which became effective Jan. 1, requires the determination of sexual assault or sexual harassment to be documented by the employer before the aggrieved person filed the claim. It also permits the no-rehire provision in settlement agreements when the "aggrieved person" did not bring their claim against their employer in good faith.

Because there is currently no definition of "good faith determination" in the statute, employers must act at their own risk when applying a no-rehire provision. They should also note that neither AB 749 nor AB 2143 address any requirement for an employer to rehire an employee who is unfit or unqualified. Those who are settling claims with employees will have to work with legal counsel when drafting settlement agreements, especially if they find the need to include a no-rehire provision.