Confidentiality in employment dispute settlements is prohibited, impacting single-plaintiff cases

In settling single-plaintiff employment disputes, confidentiality can be a crucial bargaining chip. Employers typically want it. Plaintiffs want to make the employers pay for it. Code of Civil Procedure section 1001 - enacted in 2019 - dramatically altered the status quo by prohibiting confidentiality provisions in settlement agreements for certain sex and gender-based claims. Two years ago, the prohibition was expanded to cover nearly all types of discrimination, harassment, or retaliation claims. While the statute is relatively new, practitioners representing both employees and employers alike should be mindful of its impact on settlement negotiations. 


In 2018, the Legislature passed SB-820 - otherwise known as the Stand Together Against Non-Disclosure or "STAND" Act - to curb so-called "secret settlements" that run counter to public policy. Effective Jan. 1, 2019 and codified at Code of Civil Procedure section 1001, the new law voided any settlement agreement provision that "prevents or restricts the disclosure of factual information related to a claim filed in a civil action or a complaint filed in an administrative action" regarding certain sex-based claims. This included claims for sexual assault, sexual harassment, and sex-based workplace harassment, discrimination, and retaliation.


2021 amendments to the law broadened its scope to cover any type of workplace harassment, discrimination, or retaliation - not only those based on sex or gender. Settlement agreements with respect to race, age, or disability claims, for example, generally cannot include broad confidentiality provisions.


The law, however, does include two key limiting principles:


First, and most importantly, the law only applies to a "civil action" or a "complaint filed in an administrative action." Pre-litigation settlement agreements are not subject to Section 1001's restrictions. While there has been little (if any) litigation over Section 1001's contours, it would presumably apply to demands for arbitration as well. 


This means that for many single-plaintiff employment disputes, filing becomes a critical demarcation point. If the employer desires strict (and broad) confidentiality, it increases the incentive for early mediation or some form of pre-filing resolution. Once the complaint is filed, the genie cannot be put back in the bottle even if the parties subsequently agree to confidentiality. The agreement is void as against public policy and the employer cannot enforce it. 


By corollary, plaintiffs should also be cognizant of the potential benefits to pre-filing resolution. If the plaintiff is amenable to strict confidentiality, he has another chip to play before the complaint is filed. 


In short, under this statutory scheme both employees and employers may benefit from exploring pre-litigation resolution. Rushing to file (or refusing to engage with a high initial demand) now carries with it consequences not so easily undone.


Second, under the statute, a confidentiality provision cannot prevent the disclosure of "factual information related to a claim." While not often necessary, the parties can require confidentiality with respect to workplace or personal issues unrelated to the employee's claim. Former employees can be required to maintain confidentiality with respect to trade secrets, confidential information, or simply aspects of the company (or personnel) wholly unrelated to the underlying claims.


The law includes a few other small carve-outs. The parties can agree, for example, to keep the amount of the settlement confidential or the identity of the claimant. Both sides should take advantage of these exceptions if desired.


It is important to note that for certain types of sexual offenses, even pre-litigation confidentiality agreements are prohibited. Code of Civil Procedure section 1002 voids any confidentiality provision within a settlement agreement for:


An act that may be prosecuted as a felony sex offense;


An act of childhood sexual assault, as defined in Section 340.1;


An act of sexual exploitation of a minor, as defined in Section 11165.1 of the Penal Code, or conduct prohibited with respect to a minor pursuant to Section 311.1, 311.5, or 311.6 of the Penal Code; or


An act of sexual assault, as defined in paragraphs (1) to (9), inclusive, of subdivision (e) of Section 15610.63 of the Welfare and Institutions Code, against an elder or dependent adult, as defined in Section 15610.23 and 15610.27 of the Welfare and Institutions Code. 


If any of these offenses are potentially implicated, counsel should be careful about placing confidentiality provisions in a pre-litigation settlement agreement. Failure to comply with Section 1002 "may be grounds for professional discipline and the State Bar of California shall investigate and take appropriate action in any such case brought to its attention."


Best Practices for Employers


Be ready to engage in good-faith, pre-filing negotiations and/or mediation - especially in those cases where confidentiality is a significant concern.


Have a standard tolling agreement prepared to prevent early filings motivated by statute of limitations concerns.


Where appropriate, push the case into early mediation and be willing to engage in a reasonable, informal exchange of documents. Refusing to provide those documents necessary for early, good-faith settlement negotiations forces the plaintiff to file and seek those documents in discovery. 


Remember that only "factual information related to a claim" cannot be subject to confidentiality. If there are other, unrelated issues that require confidentiality, draft a narrowly-tailored provision to cover those issues.


If desired, keep the amount of the settlement confidential.


Analyze the nature of the underlying claims to ensure that none of the offenses listed in Code of Civil Procedure section 1002 may be implicated.