Sexual-Harassment Settlements: How to Comply with California's New Rules

After months—maybe even years—of protracted litigation, you've reached a resolution with a former employee who sued for sexual harassment. To ink the deal, you use the same settlement agreement that you've used to settle workplace disputes in the past, and you feel confident that you're doing everything correctly. Right? Not so fast.

A new law, effective Jan. 1 of this year, has changed the way businesses must handle settlements, so employers will need to review their policies and procedures to ensure they meet the new requirements.

Specifically, California Code of Civil Procedure Section 1001 prohibits public and private employers of any size from settling lawsuits and administrative claims using agreements that prevent the disclosure of factual information regarding:

• Sexual assault.
• Sexual harassment.
  
• Workplace harassment or discrimination based on sex.
• The failure to prevent acts of workplace harassment or sex discrimination.
• Retaliation against workers who report sexual harassment or sex discrimination.

Any settlement agreement that provides otherwise is void on grounds of public policy. This means that settlement agreements for lawsuits or administrative claims alleging sexual harassment, assault, or discrimination or retaliation based on sex cannot be confidential.

The new law serves as yet another reminder for human resources professionals to stay informed of legislative updates in California and regularly review their employment documents for compliance.

No More Secret Settlements

Section 1001 was enacted to eliminate secret settlements that historically silenced survivors of harassment and assault and kept them from revealing the details of sexual-harassment cases. Proponents of the law cited Harvey Weinstein's alleged predatory behavior, which was kept secret and ostensibly continued in part because of the confidential settlement agreements that prevented victims from coming forward with their stories.

[SHRM members-only toolkit: Complying with California Sexual-Harassment Training Requirements]

However, opponents of the law were concerned that a blanket prohibition on confidential settlement agreements in harassment cases could chill settlements altogether. Companies might be less willing to enter into mutually beneficial pacts with current and former employees if the law was enacted in such a broad manner. Companies often settle cases based on the cost of defense as compared with the cost of settlement. Further, by their nature, settlements are negotiated based on the risk that either party could lose at trial—not just the employer.

Opponents of the law also argued that making details of sexual-harassment settlements public would make the employer look guilty, even if it settled for business reasons. Sometimes companies settle cases to save on the cost of defense or mitigate reputational risk.

Accordingly, the final version of the statute provides that some nondisclosure provisions are still allowed. For instance, the amount a company pays to resolve a claim can still be confidential. Additionally, the parties can agree to keep the claimant's identity confidential at the claimant's request if no public officials or government agencies are parties to the settlement agreement. Parties can also keep confidential all facts that could lead to the discovery of the claimant's identity.

Employer Considerations

Employers should note that Section 1001 applies only to claims raised in a lawsuit or administrative charge, so a severance agreement or settlement agreement based on a demand letter from an employee's attorney wouldn't be covered by the new law.

But the new law may impact whether employers decide to settle or fight a sexual-harassment lawsuit. As opponents of Section 1001 pointed out, businesses don't always settle employment lawsuits based on merit. So settlement agreements may be less valuable to employers if they don't include a confidentiality clause.

California employers should review their settlement agreements to ensure they don't contain impermissible confidentiality provisions. Inadvertently including such a clause in an agreement covering claims of harassment or assault can void the entire agreement.

Annie Lau and Bailey Bifoss are attorneys with Fisher Phillips in San Francisco.

[Visit SHRM's resource page on workplace harassment.]