March 6, 2020 Category: Employment Law
Employers and employees part ways for a number of reasons. It is legal for both parties to enter into a written agreement outlining the terms and conditions of the end of the working relationship. These agreements can be a settlement to end a contentious relationship or they could be a severance package for a loyal employee who is retiring.
Some general terms and clauses that are used in these agreements are seen by some as unfair to the employee. A new law in California went into effect in 2020 that limits some of the language and conditions that can be included in these types of agreements. Specifically, it forbids employers from refusing to re-hire the employee in the future in certain instances.
“No Re-Hire” Clause
A “no re-hire” clause is a common part of settlement agreements between an employer and employee when they part ways. It is standard language that can be found quickly through an online search. It is so commonplace that many companies have it saved in their document templates for employees that are leaving, regardless of the reasons.
The purpose of the clause is to completely end any relationship between the employer and employee now and in the future. In general, a “no re-hire” clause includes language that states the employer will not re-hire the employee under any circumstances. It may also include stronger language that bars the employee from ever applying to the company again. If they do, they could face a fine according to the agreement.
This is important if the employer has associated companies. The employee may apply to a position and not realize that the new company is associated with their former employer. This clause allows the employer to disregard the application or rescind an offer to work if the employee was hired inadvertently through an associated company.
Banning the “No Re-Hire” Clause in California
In October 2019, California Governor Gavin Newsom signed Assembly Bill -749 Settlement Agreements: Restraints in Trade. The law became effective on January 1, 2020. This means that any “no re-hire” clause in an employment settlement agreement signed on or after that date will be void and unenforceable as long as it does not fit under any of the state exemptions.
This means that if an employee is leaving the employer, or is being forced to leave, because of an employment disagreement; they cannot be forced to consent to a “no re-hire” clause. An example of this would be an employee being fired for letting human resources know that the company was violating wage-and-hour laws.
The law only affects agreements that are employment dispute related. If the parting of ways is not work-dispute related, the agreement is exempt from the new law. This means that a company can include a “no re-hire” clause with a former employee who signs a severance or separation agreement that is unrelated to any employment disputes. An example of this would be someone retiring on good terms with their former company.
There are some additional exceptions where the clause may be allowed. An employer may still include a “no re-hire” clause with an employee who either engaged in sexual harassment or sexual assault. They would more than likely also be able to include the clause if the employee was caught stealing or committing a crime on company property or while working.
Why Ban the “No Re-Hire” Clause in California?
The purpose of the law is to help protect employees who are victims of harassment and discrimination. It also protects employees from being retaliated against by their employer for reporting workplace errors or violations. An employee may fear retaliation of being fired for talking with human resources about an issue at work. Now, that employee has a guarantee that if they are fired for this action, they could be re-hired in the future.
This is important for individuals who have very specialized fields of work. They may only be able to work at a few locations or for a few companies because of it. If they are barred from one company, it may be nearly impossible for them to seek work at a different location if they have signed a “no re-hire clause”.
It also protects employees of the state or state-related entities. For example, a professor at a state-funded school may have been fired for reporting harassment at work. They then signed a “no re-hire” clause with the state University. The professor could then potentially be barred with working from any state entities in the future. The new law ensures that cases like this will not stop employees from seeking work in the future.