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Is My NDA Enforceable? Recent Developments in California Law

By Katherine Bowles, Partner, and Aurora Gallardo, Law Clerk of Shustak Reynolds & Partners, P.C. posted on Tuesday, February 15, 2022.

Katherine S. Bowles

Katherine S. Bowles

Partner

Location: San Diego, California
Phone: (619) 696-9500 (Ext. 124)
Fax: (619) 615-5290
E-mail: [email protected]

Nondisclosure and confidentiality provisions have become common in employment separation agreements as more people have been speaking up about sexual harassment and discrimination they have faced in the workplace. For many, the decision to speak out about what they experienced subjected them to potential lawsuits and penalties for violating confidentiality restrictions in their employment separation agreements. For workers in California, however, employers are now prohibited from including provisions in settlement agreements that restrict speech regarding workplace harassment and discrimination.

Effective January 1, 2022, California employers must comply with the “Silenced No More Act” (C.C.P. 1001(a)(3) & (4) or the “Act”). The Act prohibits a settlement agreement from using non-disclosure provisions involving workplace harassment or discrimination. It also prevents California employers from including in separation agreements a provision that disallows the disclosure of information related to unlawful acts in the workplace. Employers are also prohibited from requiring an employee to sign a non-disparagement agreement or other documents to deny the employee the right to disclose all forms of workplace harassment or discrimination. The Act applies only to agreements entered into after January 1, 2022, so prior restrictive covenants may still be enforceable.

Employers in the securities industry were already prohibited from including provisions in settlement agreements that prevent workers from disclosing potential securities law violations to regulators (FINRA Notice to Members 14-40), but that is expanded now in California to also prevent restrictions on speech regarding discrimination. There have been a flurry of legal proceedings recently involving financial advisors detailing racial and sexual discrimination they have faced in the industry. Edward Jones recently settled a class action for $34 million that was filed by Black financial advisors relating to “systemic, intentional race discrimination” that was alleged to have been going on for years. As more allegations come to light relating to discrimination occurring at other firms, financial advisors in California can now be reassured their voices will not be stifled by restrictive separation agreements.

What California employers should do?

To be compliant with the Act, employers should:

  • Review and update their settlement and separation agreement templates to ensure compliance with the Act.
  • Incorporate the following language with any non-disparagement agreement or other contractual provision restricting an employee’s ability to disclose harassment or discrimination: “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”

What California employees should know?

Employees should understand how their rights have changed under the Act. Specifically, employees must be notified that they have the right to consult an attorney regarding the separation agreement. Further, the employer must provide the employee with reasonable time (no less than five business days) to consult an attorney about the agreement.

If you have any questions about California’s Silenced No More Act and how it could affect your company, we are here to help.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes.
We represent many broker-dealers, registered representatives, investment advisors, investors, and businesses.
Attorney Katherine Bowles can be reached in the firm’s San Diego office at (619) 696-9500.

 

 

 

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