California’s Ban on “No-Rehire” Provisions in Settlement Agreements
For years, employers inserted a quiet provision in settlement agreements: the employee could never apply for or be hired by the employer again. California outlawed this practice — and the prohibition is broader than most employees and employers realize.
A settlement agreement resolves a dispute. It should not permanently exile the employee from the employer’s workforce. Yet for decades, “no-rehire” provisions were standard — a clause buried in the agreement that prohibited the employee from ever applying for employment with the company again, regardless of the circumstances.
California Code of Civil Procedure section 1002.5, effective January 1, 2020, changed this. The statute prohibits settlement agreements from including provisions that prevent a former employee from obtaining future employment with the settling employer.
What the statute prohibits
Section 1002.5 provides that an agreement to settle an employment dispute may not contain a provision that prohibits, prevents, or otherwise restricts the settling employee from obtaining future employment with the employer or any parent, subsidiary, division, affiliate, or contractor of the employer.
The prohibition is categorical. It applies to any settlement of any employment dispute — discrimination, harassment, retaliation, wage claims, wrongful termination — and it reaches the full corporate family, not just the specific entity that was the defendant.
A settlement agreement that says “Employee agrees never to apply for or accept employment with Company or any of its affiliates” violates the statute on its face. A settlement agreement that accomplishes the same result through indirect language — “Company will not consider Employee for future positions” or “Employee acknowledges that re-employment is not contemplated” — likely violates the statute’s purpose.
The exception
The statute includes one exception: when the employer has made a good-faith determination that the employee engaged in sexual harassment or sexual assault. In that circumstance, the employer may include a no-rehire provision in the settlement agreement.
The exception is narrow. It applies only to sexual harassment or sexual assault — not to other forms of misconduct, not to performance issues, and not to other categories of harassment. And it requires a “good-faith determination” — not merely an allegation, but an actual finding that the employee engaged in the conduct.
Outside this exception, no-rehire provisions are prohibited.
Why it matters
No-rehire provisions imposed a hidden penalty on employees who settled employment claims. The employee gave up their legal claims, accepted a payment, and signed a release — and then discovered that they could never return to the employer, even years later, even for a completely different position, even after the people involved had left. In industries with a limited number of employers — healthcare systems, school districts, public utilities — a no-rehire provision could permanently limit the employee’s career options in the geographic area.
The statute eliminates this penalty. An employee who settles an employment claim retains the right to apply for future positions with the employer. The employer is not required to hire the employee — it simply cannot prohibit the employee from applying.
What to do
An employee reviewing a proposed settlement agreement should check whether it contains a no-rehire provision. If it does — and the exception for sexual harassment does not apply — the provision is unenforceable under section 1002.5, and the employee’s attorney should request its removal.
An employee who signed a settlement agreement before January 1, 2020, that contains a no-rehire provision may be bound by it — the statute applies to agreements entered on or after its effective date. But for any settlement executed after that date, the provision is prohibited.
If your settlement agreement contains a provision that prevents you from being rehired by the employer — and the narrow exception for sexual harassment does not apply — the provision violates California law. You gave up your claims. You should not also have to give up your right to future employment.
This article is general information about California law and is not legal advice. Every situation turns on its particular facts.