Assembly Bill 749’s Effect on Settlement Agreements Between Employers and Ex-Employees

Employment & Labor Update Regarding Assembly Bill 749

A recent update to California law affects settlement agreements used to resolve employment disputes between employers and former employees. This new law, Assembly Bill 749 (AB 749) which is codified at Civil Code section 1002.5 is effective as of January 1, 2020. The new law effectively bans all no-rehire provisions in employment settlement agreements entered into on or after January 1, 2020 in California. In essence, these provisions are used to prevent the employee’s future hiring or re-hiring with the employer by stating that the employee’s subsequent application for employment with the company will not be considered, and if the employee is hired by chance, their employment will be terminated. Although no-rehire provisions are most commonly used in a labor and employment context involving claims such as retaliation, discrimination, etc., they may be used in other contexts as well.

Now, pursuant to AB 749, such provisions are banned and unenforceable when used to settle an employment dispute. Civil Code section 1002.5 specifically prohibits “an agreement to settle an employment dispute from containing a provision that prohibits, prevents or otherwise restricts a settling party that is an aggrieved person, as defined, from working for the employer against which the aggrieved person has filed a claim or any parent, company, subsidiary, division, affiliate, or contractor of the employer.” (Civ. Code § 1002.5(a).) The bill defines an “[a]ggrieved person” as someone “who has filed a claim against the employer in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process.” (Id. § 1002.5(c)(1).)

An exception is that no-rehire provisions are still permitted in settlement agreements where the employer has determined in good faith that the employee engaged in sexual harassment or sexual assault. (See Id. § 1002.5(b)(1)(B).) No re-hire provisions are also still permitted in severance agreements unrelated to claims filed by the employee. (See Id. § 1002.5(b)(1)(A).)

The new law additionally expressly provides that employers are not obligated to continue to employ or rehire a former employee “if there is a legitimate non-discriminatory or non-retaliatory reason for terminating the employment relationship or refusing to rehire the person.” (Id. § 1002.5(b)(2).)

This document is intended to provide you with information about employment and labor law related developments. The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact the authors. This communication may be considered advertising in some jurisdictions.

June 16, 2020