Californians who sue licensed professionals, such as contractors or nurses, will no longer be subjected to legal settlements that ban them from talking to state officials investigating misconduct when a new law takes effect in January.
The law prohibits civil legal settlements that bar consumers from cooperating with authorities who probe negligence and other misconduct by state licensees, including accountants, veterinarians, pharmacists, behavioral therapists and physician assistants. Laws banning such gag clauses in settlements with physicians and lawyers already are on the books in California.
“They’re immoral,” said Julie D’Angelo Fellmeth, administrative director of the Center for Public Interest Law. Gag clauses "allow an unscrupulous person who is licensed by the state of California to hurt people, settle with them and then gag them so they are controlling the information that’s going to their own regulator.”
D’Angelo Fellmeth, who supported the bill, said court precedents already prohibit the gag clauses for a handful of professions. But the new law applies to thousands of licensees regulated under the state Department of Consumer Affairs.
Then-Assemblyman Jerry Hill, D-San Mateo, introduced the bill in February; he was elected to the state Senate last month. Two prior versions of the bill failed, including a 2004 bill vetoed by then-Gov. Arnold Schwarzenegger.
In his veto message, Schwarzenegger said the law would allow someone who agrees to a civil settlement to still file a regulatory complaint, subjecting licensed workers to “double jeopardy.”
"The policy implications of this bill do not further the goal of making California more business friendly," the veto message said.
Jody Costello, a San Diego resident who testified in favor of the earlier bill, said she is “just thrilled” that Gov. Jerry Brown signed the latest bill into law.
Costello said she sued a contractor in 2000 who built a second story on her home that was riddled with leaks and mold. She said she turned down a financial settlement that included a confidentiality agreement.
She said it’s in the public’s best interest that questionable operators are stopped.
“You should never use (a gag clause) to keep information from an agency that is there to protect the consumer,” she said. “If you can’t get your hands on the information, the next unsuspecting person gets in there and (the problem) just starts all over again.”
An analysis of the new law discusses several cases in which appellate courts found that regulatory gag clauses were contrary to the public interest.
In one 1996 case, a teacher sued his district for sending details about his resignation to the Commission and Committee on Teacher Credentialing. Even though a nondisclosure agreement was in place, the court sided with the district that filed the report on the teacher, saying “there would be no genuine oversight” of teacher credentials if the teacher could dictate what overseers see.
A 2000 case concluded that a securities broker could not prevent a former client from reporting misconduct in a legal settlement. Shielding misconduct from overseers would "undermine the public's confidence in the integrity of securities oversight," the court ruled.
Virginia Herold, executive director of the state's Board of Pharmacy, supported the bill and applauded its success. "We think that gag clauses in settlement agreements are bad for the public," she said.