Six years into AB 749 and four years into SB 331, the basic architecture of a California sexual harassment settlement bears little resemblance to what plaintiff-side counsel were drafting in 2018. The no-rehire clause is gone. The non-disclosure clause has been carved up. The non-disparagement clause has been read aloud during severance review meetings. And yet the defense bar continues to circulate template language that ignores most of it.
For working plaintiff counsel, this is a workable footing. The statutory floor on settlement terms shifts the negotiating posture away from the defense — which historically anchored on confidentiality and permanent separation as non-negotiables — and toward the claimant. Understanding which provisions are now flatly void, which require statutory carve-outs, and which still trade for real money is the difference between a clean release and one that gets attacked two years later.
The Statutory Stack
Four statutes do most of the work. Code of Civil Procedure section 1002.5, enacted by AB 749 and amended by AB 2143, bars any no-rehire provision in a settlement of an employment dispute. Code of Civil Procedure section 1001, enacted by SB 820, voids any provision that restricts disclosure of factual information related to a claim of sexual assault, sexual harassment, or workplace harassment or discrimination based on sex. Government Code section 12964.5, expanded by SB 331, prohibits non-disparagement and confidentiality terms in employment-related separation agreements that restrict disclosure of information about unlawful acts in the workplace. And Government Code section 12923 — the FEHA declaratory statute — instructs courts that a single incident of harassment may be sufficient and that the existence of a hostile work environment is rarely appropriate for summary judgment.
Read together, these statutes do something defense counsel often miss: they reorganize what is for sale. The claimant can no longer sell silence about the harassment or about the broader workplace conduct. The claimant can no longer sell her right to apply for future employment with the same employer, its parents, or its subsidiaries. What remains for sale is the claim itself — and the timing, payment structure, and tax treatment of the settlement consideration.
What AB 749 Actually Prohibits
Section 1002.5(a) voids any provision in a settlement agreement that prohibits the settling party from obtaining future employment with the employer against which the aggrieved person has filed a claim. The statute reaches the employer's parent company, subsidiary, division, affiliate, and successor. The two carve-outs are narrow. First, the employer may include a no-rehire term if it has made a good-faith determination that the aggrieved person engaged in sexual harassment or sexual assault. Second, the employer is not required to continue employing or rehire a person where there is a legitimate non-discriminatory or non-retaliatory reason for termination or refusal to rehire.
The first carve-out has teeth. Defense counsel routinely propose a no-rehire clause coupled with a recital that the employer has made the good-faith determination. Plaintiff counsel should refuse. A recital is not a determination. The statute requires the determination to be made before the agreement is entered, supported by an investigation, and the employer bears the burden if the term is later challenged. Where the claimant is herself the target — the ordinary posture in a FEHA harassment matter — the carve-out does not apply at all, and any no-rehire language is void on its face.
The second carve-out is a defense reservation, not an enforceable term. It does not authorize a written no-rehire provision; it merely preserves the employer's at-will discretion. Including it in the agreement adds nothing the employer does not already possess and signals to a reviewing court that the parties intended a prohibited term.
SB 820 and SB 331: The Confidentiality Carve-Out
Section 1001 voids any settlement provision preventing disclosure of factual information related to a claim filed in a civil action or administrative complaint involving sexual assault, sexual harassment, harassment or discrimination based on sex, retaliation for reporting same, or a failure-to-prevent claim. The statute permits the claimant — at the claimant's election — to shield her own identity and any identifying facts. It does not permit the defendant to shield the conduct or the identity of the harasser.
SB 331's expansion of section 12964.5 extends the same principle into separation agreements signed outside of litigation. Any provision in a non-negotiated severance or release that restricts disclosure of information about unlawful acts in the workplace — including all FEHA-protected harassment and discrimination, not only sex-based — is unenforceable. The statute also requires that the employee receive notice of the right to consult counsel and a minimum of five business days to do so for severance agreements.
The practical effect on settlement drafting is significant. Defense templates still circulate with broad confidentiality clauses that swallow factual disclosure. Plaintiff counsel should redline these to a narrow amount-and-terms-of-payment confidentiality term with explicit reservation of the claimant's right to discuss the underlying facts. Where the defense pushes back, the response is that the broader term is void as a matter of California public policy and threatens to taint the entire agreement under severability analysis.
Settlement Structure and Tax Treatment
With silence and permanent separation off the table as primary trade items, the negotiation moves to structure. Three components matter most.
First, allocation. Sexual harassment recoveries are typically split among wages, emotional distress, and attorney's fees. Wage allocations trigger withholding and employer-side payroll tax. Emotional distress allocations under Internal Revenue Code section 104(a)(2) require an underlying physical injury or physical sickness for tax exclusion, which the IRS reads narrowly in harassment cases absent documented somatic symptoms. Plaintiff counsel should anchor on a defensible allocation supported by treatment records and pleadings, then negotiate the percentage. Defense counsel will often agree to a heavier emotional distress allocation in exchange for a clean general release, because it costs the employer nothing.
Second, structured payments. With the Tax Cuts and Jobs Act's elimination of the above-the-line deduction for employment-related attorney's fees in non-FEHA matters, the qualified settlement fund and structured attorney fee remain useful tools for fee deferral. For the claimant, structured payments under Internal Revenue Code section 130 can spread emotional distress recovery across multiple years, though the underlying tax character of the recovery must support exclusion.
Third, the Form W-2 versus Form 1099 split. Defense counsel often resist issuing two forms; the IRS expects them. Wage components belong on a W-2 with proper withholding; non-wage components belong on a 1099-MISC box 3. A clean split protects the claimant from later notice-of-deficiency exposure and avoids the gross-up demand that defense counsel will refuse on principle.
Where Plaintiff Counsel Holds the Stronger Hand
Government Code section 12923 is the most underused statute in California harassment practice. Its declarations — that harassment cases are rarely appropriate for summary judgment, that a single incident may suffice, that the legal standard for severe or pervasive conduct is not a high bar — are binding on California courts. Defense counsel who anchor settlement value on a perceived summary judgment threat are pricing against a statute that has effectively closed that exit. Plaintiff counsel should cite section 12923 in mediation briefs and demand letters; the citation alone reframes the risk allocation the defense carrier is modeling.
The Court of Appeal has reinforced this in pattern-of-conduct and constructive-discharge contexts, declining to disturb plaintiff verdicts where pre-2019 analysis would have invited remittitur. The same trial-court posture that produced the appellate affirmances discussed in recent unpreserved-error rulings — that defense counsel cannot raise on appeal arguments not preserved at trial — applies with equal force to FEHA verdicts. Defense settlement evaluations that assume appellate rescue are increasingly unrealistic.
Plaintiff counsel handling parallel personal-injury matters should also note that the doctrinal shift visible in recent non-delegable duty rulings — that defendants cannot contract their way out of liability through nominal third-party structures — has an analog in FEHA. Employer attempts to push harassment liability onto a temp agency, staffing firm, or co-employer are evaluated under California's joint-employer doctrine, which looks to the degree of control over hiring, supervision, and discipline. Where the alleged employer exercised meaningful operational control, joint liability is the default rather than the exception.
Drafting Notes and Hidden Traps
Several recurring defense moves should be reflexively redlined. References to any future application for employment must be struck. Liquidated damages clauses tied to confidentiality breach should be capped at the disclosed factual information that remains lawfully restricted — typically the dollar amount of payment, not the underlying conduct. Tax indemnification clauses should be mutual; defense templates routinely propose one-sided indemnification that shifts all withholding-error risk onto the claimant.
Non-cooperation provisions — clauses prohibiting the claimant from voluntarily assisting other employees with harassment claims — are independently void under both section 1001 and section 12964.5. They appear in roughly half of defense template agreements and should be struck without negotiation. The same applies to provisions purporting to require the claimant to withdraw or not file complaints with the EEOC, the Civil Rights Department, or the Department of Labor. These are unenforceable as a matter of federal and state law and their inclusion can support a bad-faith argument against the employer.
Finally, the integration clause. Defense counsel will resist any side letter or separate writing. Where the claimant requires a reference letter, a neutral employment verification, or a specific COBRA arrangement, these should be incorporated into the settlement agreement itself with specific performance language. A handshake on these terms is worth nothing once the check clears. The same drafting discipline that careful trial counsel apply to preserving defenses — pin everything to a writing, assume nothing about good faith going forward — applies with equal force to a settlement agreement.
Closing Observation
The statutory restructuring that began with SB 820 in 2018 has produced a settlement market in which the defense bar's traditional anchors — silence, permanent separation, and a broad mutual release — have been disassembled by the Legislature. Plaintiff counsel who treat the resulting agreement as a pricing exercise rather than a confidentiality negotiation are recovering more money on cleaner terms. Defense counsel still circulating 2017 templates are paying for the privilege of having them voided.
This article is published by LawyersTrend, a trade publication for plaintiff personal-injury and employment counsel. The publisher and advertisers do not provide legal advice; nothing here is a substitute for consultation with licensed counsel in the jurisdiction of any matter discussed.