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California Bans “No Rehire” Clauses in Settlement Agreements

Governor Newsom recently signed into law Assembly Bill 749 that bans so-called “no rehire” clauses in settlement agreements. A typical “no rehire” provision might look something like this:

“No Rehire: EMPLOYEE understands and agrees that, as a condition of receiving the payment of the Settlement Amounts and other mutual promises set forth herein, EMPLOYEE will not be entitled to any future employment with COMPANY, its subsidiaries or affiliates. EMPLOYEE further agrees that EMPLOYEE will not apply for or otherwise seek future employment with or engagement by COMPANY, its subsidiaries or affiliates in any capacity, including as an employee, independent contractor or vendor.”

No rehire provisions like this are common in settlement agreements including claims involving harassment, discrimination, retaliation, and wrongful adverse employment decisions (such as failure to promote). As can be seen, a no rehire provision prohibits a person who has signed a settlement agreement from being hired again by the employer. Sometimes a no rehire provision will be time-limited; but often the clause has no end date meaning a permanent ban from being hired by that employer.

However, under the new law — Assembly Bill 749 — such clauses are now invalid in settlement agreements. See text of AB 749 here. AB 749 was authored by Assemblyman Mark Stone (D-Monterey) who claimed that the law was needed for moral and practical reasons. Morally, he argued that it was unfair that the person alleging harassment or discrimination was no longer employed while the perpetrator was often retained. Further, given the size of many companies, a rehiring ban was a significant restraint on trade, making it difficult for victims to find new employment. AB 749 was written to eliminate these wrongs. Assemblyman Stone is quoted as saying that the new law “… will have a meaningful impact for victims.”

The ban applies specifically to “settlement agreements” and protects “aggrieved persons.” Essentially, “aggrieved persons” are the victims of harassment or discrimination. The statute broadly defines “aggrieved person” as any person who has filed a claim against an employer “… in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process.”

AB749 contains two exceptions. No rehire clauses are still allowable if:

There is a legitimate non-discriminatory or non-retaliatory reason for terminating the employment relationship or refusing to rehire the person; or
The employer determines in good faith that the terminated employee engaged in sexual harassment or sexual assault

AB 749 goes into effect January 1, 2020.

Contact San Diego Corporate Law Today

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard provides a full panoply of legal services for businesses including formation of corporate entities of all types. Like us on Facebook.