Limitations on no rehire provisions
Q
I want to settle a lawsuit with a former employee. Can I include language in the settlement agreement that says the former employee agrees that I will never rehire him?
A
No. Under new Code of Civil Procedure section 1002.5 (AB 749), effective Jan. 1, a settlement agreement or severance agreement in an employment dispute cannot contain a provision prohibiting, preventing, or restricting an “aggrieved person” from obtaining future employment with the employer, parent company, subsidiary, division, affiliate, or contractor of the employer. The new law explicitly states that a “no rehire” provision is void as a matter of law and against public policy. One reason for the new law is to prevent the situation where an employee reports unlawful harassment but then faces the prospect of having to give up his or her job to settle the claim.
The law defines an “aggrieved person” as someone who has filed a claim against his or her employer in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process. This definition prohibits the use of “no rehire” provisions in settlement agreements that resolve employment disputes filed in forums such as the courts, the Division of Labor Standards Enforcement (“DLSE”), the Department of Fair Employment and Housing (“DFEH”), or an alternative dispute resolution forum.
The new law also prohibits the use of a “no rehire” provision when an employee has alleged a claim using an employer’s “internal complaint process.” This term is not specifically defined. Consequently, employers should be mindful of their complaint procedures and determine whether such procedures are, or could be, considered an “internal complaint process.”
An employer may include a “no rehire” provision in a severance or separation agreement if the employee has not filed a claim against the employer. Also, an employer can include a “no rehire” provision in a settlement agreement if the employer has made a good faith determination that the settling employee engaged in sexual harassment or sexual assault.
“No rehire” provisions in settlement agreements were often used to make it clear that the settling former employee could not apply for a job and then bring a claim for retaliation if he or she was not offered the job. While the new law eliminates the use of “no rehire” provisions in most situations, this does not automatically mean that an employer has to continue to employ a current aggrieved employee, or rehire a former aggrieved employee. Rather, the employer can discontinue employment or not hire the aggrieved person if the employer has a legitimate, non-discriminatory, or non-retaliatory reason for doing so. Employers should ensure that they consistently apply their performance evaluation procedures and regularly document employee performance issues so that if they choose to discharge an employee and then not rehire him or her, they will have sufficient documentation to support that decision.
Employers should review their severance agreements and settlement agreements to ensure that they comply with Code of Civil Procedure section 1002.5. Some options to consider are to not use a “no rehire” provision in any situation; or include the provision in those limited circumstances where the new law does not apply. Sara Boyns is a lawyer with Fenton & Keller in Monterey. This column is intended to answer questions of general interest and should not be construed as legal advice. Mail queries to “Workplace Law,” c/o The Monterey Herald, Box 271, Monterey 93942 or to email@fentonkeller.com.