No-Rehire Clauses in California Employment Settlements
A no-rehire clause is a settlement term in which a former employee agrees never to work for the company again. In California, Code of Civil Procedure section 1002.5 makes that term void in most agreements settling an employment dispute, including bans that reach the employer’s corporate family. A narrow exception remains for an employee the company found, and documented, before the claim was filed, to have engaged in sexual harassment, sexual assault, or criminal conduct. Releases built from older templates are where most employers get caught.
What does section 1002.5 prohibit?
A rehire ban in a settlement with someone who brought a claim. Section 1002.5(a) says “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.”
The wording is broad on purpose. The statute’s phrase “otherwise restricting” reaches more than a flat ban. A promise not to apply, a clause letting the company reject any future application without reason, or an agreement to withdraw from a pending application can all fall within it. The corporate family is covered too, so a clause that only bars work at a sister company or a contractor is no safer than one that bars work at the employer itself.
The same subdivision sets the consequence: 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.” The chapter was added in 2019 (Stats. 2019, ch. 808), and the section was last amended by Assembly Bill 2143 (Stats. 2020, ch. 73), effective January 1, 2021.
Who counts as an aggrieved person?
More people than most employers expect. Under section 1002.5(c)(1), an aggrieved person is “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.”
That last phrase is the one that matters for early settlements. An employee who complained to HR about a manager, then negotiated a separation package before any lawsuit or agency charge, has still filed a claim through the internal complaint process. The no-rehire rule applies to that agreement.
A routine severance agreement with an employee who never complained about anything falls outside the statute’s definition. That doesn’t make a no-rehire clause risk-free there. Business and Professions Code section 16600(a) says “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void,” and a former employee in a field where the company and its affiliates are major employers may argue that a broad rehire ban is that kind of restraint.
When is a no-rehire clause still allowed?
Only in one situation, and the employer has to have built the record before the claim. Section 1002.5(b)(1)(B) permits an agreement that restricts 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.”
Each piece of that sentence is a condition. The determination has to be made in good faith, it has to be documented, and it has to come before the claim was filed. A finding made during litigation, or a memo written after the demand letter arrived, doesn’t qualify. Sexual harassment carries the meaning in Government Code section 12940(j), and sexual assault means conduct that would constitute one of the Penal Code crimes the statute lists, or an assault with intent to commit or an attempt to commit one of them.
Read the exception’s text closely. It allows a restriction on employment “with the settling employer,” while the general ban in subdivision (a) also covers the employer’s affiliates and contractors. A clause invoking the exception is easier to defend if it’s limited to the entity that made the finding.
The practical lesson comes long before any settlement. When an internal investigation substantiates harassment or criminal conduct, the written findings, dated and signed by the decision-maker, are what later make this exception available.
Does the company have to rehire someone who settled?
No. Section 1002.5(b)(2) says the statute doesn’t “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.” The parties can also still agree to “End a current employment relationship,” under subdivision (b)(1)(A).
The risk is in the reason. Government Code section 12940(h) makes it unlawful “to discharge, expel, or otherwise discriminate against any person because the person has opposed any practices forbidden under this part or because the person has filed a complaint, testified, or assisted in any proceeding under this part.” A settling employee who later reapplies and is turned down has a ready-made retaliation theory if the only visible reason is the earlier claim.
Many HR systems code departing employees as eligible or not eligible for rehire. A code marking the employee ineligible, entered after the claim with no other documented reason, is the kind of evidence that turns a routine rejection into a new lawsuit. The safer practice is to set rehire eligibility at separation, on criteria the company applies to everyone, and leave it alone afterward.
How do the rules apply to common settlement terms?
| Settlement term | Status under section 1002.5 | Where it comes from |
|---|---|---|
| Agreement to end the current employment relationship | Allowed | Subd. (b)(1)(A) |
| Ban on future work for the employer or its affiliates or contractors | Void in agreements entered on or after January 1, 2020 | Subd. (a) |
| Promise not to apply for future positions | Likely void as a restriction on future employment | Subd. (a) |
| Ban based on a documented pre-claim finding of sexual harassment, sexual assault, or criminal conduct | Allowed with the settling employer | Subd. (b)(1)(B) |
| Ban based on a finding made after the claim was filed | Not within the exception | Subd. (b)(1)(B) |
| Declining a later application for a legitimate, non-retaliatory reason | No duty to rehire | Subd. (b)(2) |
What should the company check before signing a settlement?
- Keep the litigation hold in place until the agreement is signed and performed, covering the personnel file, the investigation file, the separation paperwork, and the HR system’s rehire-eligibility record for the employee.
- Calendar any response deadlines that are still running, and confirm whether an arbitration agreement governs the claim and whether the EPLI carrier has to approve the settlement terms.
- Identify who decides rehire eligibility at the company and its affiliates, and make sure no one changes the employee’s status in a way that could look like retaliation for the claim.
- Pull the release template and search it for any rehire or reapplication language, and if the company intends to rely on the exception, pull the dated investigation findings that predate the claim.
- Have a lawyer review the agreement before it’s sent to the employee or the employee’s counsel, including how the no-rehire terms interact with the confidentiality rules for the same claim.
The rules on settlement confidentiality for harassment and discrimination claims are covered in a separate post on CCP 1001, and the firm’s page on California employment settlement defense describes how it resolves these claims for employers.
No-rehire questions from California employers
Does section 1002.5 affect settlements signed before 2020?
The voiding sentence in section 1002.5(a) applies to provisions “in an agreement entered into on or after January 1, 2020.” An older settlement isn’t voided by that sentence. A company relying on a pre-2020 no-rehire clause to turn down an application should still look at the reason it’s giving, because the retaliation rules apply to the hiring decision today.
Can the agreement just say the employee doesn’t intend to reapply?
That’s risky. The statute reaches any provision “prohibiting, preventing, or otherwise restricting” future employment, and a recital that the employee won’t reapply can be read as a restriction, and more so if the company later cites it to reject an application. If the parties want to say the relationship is over, the safer language is an agreement ending the current employment, which subdivision (b)(1)(A) expressly allows.
Does the rule apply to a settlement reached in arbitration?
Yes. The definition of aggrieved person covers a claim filed “in an alternative dispute resolution forum,” so a settlement of an arbitration demand is treated the same as a settlement of a lawsuit or agency charge. The same goes for a settlement of a complaint raised only through the employer’s internal process, which is often the first claim an employee makes.
What happens to the rest of the settlement if the clause is void?
The statute voids the offending provision. Whether everything else holds up depends on how the agreement is drafted, including whether it has a severability clause and whether the no-rehire term was a key part of the deal. Removing the clause before signing avoids the question, and that’s almost always the better course.
If your settlement template still has a no-rehire paragraph
If your company is negotiating a release with an employee who complained, sued, or filed a charge, the rehire terms deserve the same scrutiny as the payment terms. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving settlement agreements and no-rehire provisions. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.
Sources
The statutes are Code of Civil Procedure section 1002.5, as last amended by Assembly Bill 2143 (Stats. 2020, ch. 73), Government Code section 12940, and Business and Professions Code section 16600.
This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.