Reaching a settlement in an employment dispute can be a relief. However, negotiating the terms of a settlement agreement can also be complex because it must cover the claims, possible compensation and any contingencies.

A common contingency that California employers include is a “no-rehire” clause, but an Assembly bill signed by Gov. Gavin Newsom will no longer allow these clauses in any settlement agreements.

WHAT IS A “NO-REHIRE” CLAUSE?

The “no-rehire” clause of a settlement agreement allows an employer to avoid rehiring or deny employment to an applicant without facing charges of discrimination. These clauses only apply in the specific circumstances that:

  1. The applicant was a former employee of the business; and
  2. The applicant and employer were both involved in an employment dispute.

These clauses allowed employers to end the professional relationship with the employee and avoid any future legal issues with them.

THE CLAUSE IS BANNED, BUT EMPLOYERS DO NOT HAVE TO REHIRE

Gov. Newsom signed Assembly Bill 749 on October 12, 2019. This bill bans employers from including “no-rehire” clauses in any future settlement agreements. It will also make any of these clauses in current settlement agreements void.

However, the bill does not prevent employers from:

  • Ending the employment relationship with the employee;
  • Not rehiring the employee after reaching a settlement agreement, as long as this is not in retaliation; or
  • Including a “no-rehire” clause if the employee in question participated in workplace harassment.

Therefore, employers cannot use the clause, but they can still act on it if they have a legal reason. But state lawmakers banned the clause itself because they believe that the restrictions of a “no-rehire” clause violate an employee’s rights.

Banning these clauses will likely create some new challenges for employers. However, they still have options to protect their businesses from problem employees and disputes, even without these clauses.