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New Law on Settlement Agreements

A new California law effective January 1, 2020 governs settlement agreement language regarding employment dismissals and rehires. An employer and employee can still agree that a settlement includes termination of employment, but the agreement cannot include language that the person is barred from re-employment.

The legislative history of AB749 shows that the motive behind the law was to prevent situations where a sexual harasser remains employed by a company, but the victim can’t get back or hang on to a job. Here’s the language:

“An agreement to settle an employment dispute shall not contain a provision prohibiting, preventing, or otherwise restricting a settling party that is an aggrieved person from obtaining future employment with the employer against which the aggrieved person has filed a claim. . .”

The law specifically allows termination of a current relationship. Also, the law explicitly states that an employer need not re-hire someone when “the employer has made a good faith determination that the person engaged in sexual harassment or sexual assault” or ”there is a legitimate non-discriminatory or non-retaliatory reason for terminating the employment relationship.”

If It’s Not a Sexual Harassment Case?
This law applies to all claims brought by an employee against an employer in any forum, including mediation, arbitration or other internal process. When an injured worker has not returned to work for years, their employment status in certain situations could still be technically “employed.” To clarify that the injured employee cannot access employee benefits, a settlement agreement may include language defining the date of termination of employment or might specify that the employee is resigning.

I have helped create a settlement where status as an employee was reinstated for a minimal amount of time with the proviso that the employee was resigning on a specific date. I have also helped create settlement agreements where the employee was paid as an independent contractor for a limited period.  This will be more difficult now after passage of AB5, also going into effect on January 1, 2020, which tightens the definition of who is an independent contractor.

Settle, Settle, Settle

It’s almost always better to settle than to keep pouring money into litigation. A trained settlement professional can help you negotiate the best result.