Limited Prohibition on ‘No Rehire’ Clauses

California Government Update

California Governor Gavin Newsom has signed legislation that prohibits “no rehire” clauses in settlement agreements effective January 1, 2020.

The new law will change a standard practice in California of including blanket provisions in employment settlement agreements that bar an individual from being rehired.

The bill, AB 749, was authored by Assembly Member Mark Stone (D-Monterey) and passed the legislature over the opposition of Republicans and multiple moderate-leaning Democrats on September 5, 2019, and was signed into law on September 12, 2019.

California’s Legislative Counsel summarizes the new law as prohibiting “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” or its affiliates. But note, the new law is not intended to require an employer to retain or rehire an aggrieved party if the employer has determined there is a legitimate nondiscriminatory or nonretaliatory reason for terminating or refusing to rehire the person.

The protections of the new law are not extended to an aggrieved party where the involved employer has made a good faith determination that the individual engaged in sexual harassment or sexual assault.

Proponents of the measure argued to legislators that AB 749 would bring greater fairness to the settlement process by prohibiting any provision that restricts the ability of an “aggrieved” employee to work for the employer. Supporters further argued that the bill will only protect employees who are victims of alleged discrimination, harassment, or other labor or employment law violations and that it will not protect the perpetrators of wrongful acts that give rise to an employment dispute.

Opponents, including the California Chamber of Commerce, objected first to the broad definition of an ‘aggrieved’ person under AB 749 as being anyone who has “filed a claim against the employer in court, before an administrative agency, an alternative dispute forum, or an employer’s internal complaint process.” The Chamber also argued that the law is unnecessary because the courts have already determined that excessively broad no-rehire provisions violate Business and Professions Code Section 16600.

California is reportedly one of the first states in the nation to enact such a measure.