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"You can('t) work here again": the illegality of "no-rehire" provisions in California contracts

Updated: Jan 10


Summary. No-rehire provisions are unlawful in California except where there was a 1.) prior 2.) good faith, 3.) documented determination by the employer that the departing employee engaged in sexual harassment, sexual assault, or criminal conduct. No-rehire provisions are otherwise considered unlawful restraint of trade in California and will not be enforced absent those exceptions.


If you are an employee who is about to resolve an ongoing dispute with your employer, you may be asked to resign from the company as part of the settlement. Along with resigning, you may be required to sign a multi-page severance agreement, also referred to as a release, which sets forth an exhaustive list of rights you’ll be giving up, i.e., not to disparage the company, bring more claims, discuss settlement, etc.


Despite recent changes in California law, my experience as an employment lawyer who reviews severance agreements regularly is that most California employers are still putting a provision into settlement agreements that unlawfully forces employees to agree never to seek re-employment with the company or its subsidiaries or affiliates. If you work for a behemoth with locations all over California or the world, with an inclination to snap up smaller companies, this provision could significantly limit your options when looking for replacement employment. Or you may already be working for a subsidiary when asked to sign this agreement, which would arguably give your new employer cause to summarily terminate your employment. Potentially scary stuff.

California decided that such provisions amount to an unlawful restraint of trade and also discourage employees from reporting unlawful conduct. Thus it became illegal as of January 2020 for an employer to insist as part of a settlement that an employee agree not to re-apply. With three distinct exceptions, you have a right to re-apply for a job with your former employer, its affiliates and subsidiaries, whenever you feel like it.


The unlawful provision typically looks something like this:


“You agree that you will not seek reemployment with ACME CORPORATION or any of its subsidiaries, affiliates or divisions. You further agree that, if you seek any such employment, a rejection of your application or inquiry will not constitute a breach of this agreement or a violation of law in any manner whatsoever.”


Here’s the code section prohibiting that:

California Code of Civil Procedure Section 1002.5


(a)"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, or any parent company, subsidiary, division, affiliate, or contractor of the employer. A provision in an agreement entered into on or after January 1, 2020, that violates this section is void as a matter of law and against public policy.


(b) Nothing in subdivision (a) does any of the following:


(1) Preclude the employer and aggrieved person from making an agreement to do either of the following:


(A) End a current employment relationship.


(B) Prohibit or otherwise restrict the settling aggrieved person from obtaining future employment with the settling employer, if the employer has made and documented a good faith determination, before the aggrieved person filed the claim that the aggrieved person engaged in sexual harassment, sexual assault, or any criminal conduct.


(2) Require an employer to continue to employ or rehire a person if there is a legitimate non-discriminatory or non-retaliatory reason for terminating the employment relationship or refusing to rehire the person.


(c) For purposes of this section:

(1) “Aggrieved person” means a person who, in good faith, has filed a claim against the person’s employer in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process.

(2) “Sexual assault” means conduct that would constitute a crime under Section 243.3, 261, 262, 264.1, 286, 287, or 289 of the Penal Code, assault with the intent to commit any of those crimes, or an attempt to commit any of those crimes.

(3) “Sexual harassment” has the same meaning as in subdivision (j) of Section 12940 of the Government Code."

_________


Discussion: Note that this prohibition applies to an employee who brought a claim against the company, either through the judicial system, an administrative forum (like the NLRB or California Civil Rights Department, formerly the DFEH) or through the company’s internal complaint system. Note, too, that the employer is free to decide not to rehire a former employee, but it cannot require the employee’s buy-in in advance. Notice that the determination of sexual harassment, sexual assault or criminal conduct has to have been made before a claim was filed. This is presumably to disincentivize an employer from conducting a post-hoc investigation to justify a termination. Additionally, the determination has to have been documented and made in good faith. Those three factors make the exception to the no re-hire provision very challenging for employers.


The takeaway: If there was no documented, good faith investigation which concluded the occurrence of criminal misconduct, sexual assault or sexual harassment before you filed a claim with your employer, you should be able to comfortably reject any effort by your employer to make you sign a no-rehire agreement.


Please call me with your employment-related questions. The first consultation is free. 925-378-3896.


NOTE: Readers should contact their attorney to obtain advice with respect to any particular legal matter. No reader, user, or browser should act or refrain from acting on the basis of information in this article without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this article or any of the links or resources contained within the article do not create an attorney-client relationship between the reader, user, or browser and the authors, contributors, contributing law firms, or committee members and their respective employers.


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