California Employment Law

Sexual Harassment Settlements in California: How They Work

Benjamin Eghbali, Esq.Reviewed by Benjamin Eghbali, Esq.,

Most harassment claims end in a signed agreement, not a verdict. Here is how one is reached, what each clause does, what the law forbids, and when the money arrives.

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Eghbali Law Firm, California employment attorneys Sexual Harassment

Most California sexual harassment claims end with a signed agreement, not a verdict. That agreement decides far more than the amount. It sets what you give up, what you can say afterward, how the money is taxed, and the day it reaches you.

This page walks through how a settlement is reached, what each clause does, what California law will not let an employer put in the document, and what to check before you sign.

The short answer

  • A settlement is a contract. You release your claims and the employer pays. Neither side admits anything.
  • It can happen at any stage. Before anything is filed, during agency mediation, after a lawsuit starts, or the week before trial.
  • The amount can be kept confidential. The facts of a filed harassment claim cannot.
  • The decision is yours. Your lawyer advises. Only you can accept or refuse.
  • Payment follows on the date the agreement sets, commonly within about 30 days of signing.

How a settlement is reached

The four usual routes
RouteWhenHow it works
Direct negotiationBefore anything is filedYour lawyer sends a demand letter setting out the facts and the evidence. The two sides trade offers by letter and phone
Agency mediationAfter a complaint to the Civil Rights Department or a federal chargeA staff mediator works with both sides at no cost. It is voluntary. The federal agency says its mediations usually finish in under three months
Private mediationAfter a lawsuit or arbitration has startedBoth sides hire a neutral mediator, often a retired judge or an experienced employment lawyer, for a day. Most litigated cases resolve this way
Settlement conferenceClose to trialThe court can order both sides to attend a conference with a judge, with someone present who has authority to settle

Whatever the route, the steps are much the same:

  1. The claim is valued. Lost pay, the harm done, the strength of the proof. See how a case is valued.
  2. A demand is made, with enough evidence to be taken seriously.
  3. The employer answers. The first response is usually a denial or a low figure. That is a negotiating position, not a judgment on your case.
  4. Offers move. Sometimes over weeks, sometimes in a single day.
  5. Agreement in principle. The main terms are written down and signed, often on a short term sheet.
  6. The full agreement is drafted, reviewed by both sides and signed.
  7. Any waiting period runs, payment is made, and the case is closed.

What happens at mediation

You are not put in a room with the harasser. Each side normally has its own room, in person or by video. The mediator moves between them carrying offers and arguments. The employer sends its lawyer and someone with authority to agree a figure, and often an insurer.

It is confidential. Under California's Evidence Code, what is said for the purpose of a mediation cannot be used as evidence later, and offers to compromise cannot be used to prove liability. You can speak frankly.

Nothing binds until it is signed. Either side can walk away. The mediator has no power to decide the case.

Expect a long day and a low first offer. Movement usually comes in the afternoon. If the sides stall, the mediator may propose a figure to both in confidence. Each answers yes or no privately, and neither learns the other's answer unless both say yes.

A term sheet signed that day is a contract. Read it as carefully as the final document. If a term matters to you, such as a reference, the wording of your departure, or what you may say, it belongs on that page.

What the agreement contains

The clauses, and what to check in each
ClauseWhat it doesWhat to check
PaymentStates the total, how it is divided, who is paid, and whenA fixed date, not "a reasonable time." How much is treated as wages
Release of claimsYou give up every claim against the employer up to the date you sign, including ones you do not yet know aboutThat it covers the individuals as you intend, and that unpaid wages, vested benefits and any workers' compensation claim are dealt with properly
ConfidentialityLimits what either side may say about the settlementThat it is limited to the amount and terms, and names who you may still tell: spouse, tax adviser, lawyer, therapist
Non-disparagementEach side agrees not to run the other downThat it binds the employer too, and carries the wording California requires about unlawful acts at work
No admissionThe employer denies wrongdoingStandard. It does not reduce what you are paid
Employment statusRecords whether you stay, resign, or have already left, and on what dateHow your departure is described, final pay, accrued vacation, benefits end date
ReferenceSets what the employer will say to future employersAn agreed neutral reference, and one named person who gives it
Tax termsSays which forms will be issued and who bears tax riskAny promise to cover the employer's tax costs should be narrow
DismissalYou agree to withdraw the lawsuit, arbitration or agency complaintThat dismissal follows payment, not the other way round
EnforcementSays what happens if a side breaks the dealThat the court keeps power to enforce it, and that any penalty on you for a breach is not out of proportion

The release normally asks you to give up the protection of Civil Code section 1542. That section would otherwise keep alive claims you did not know about when you signed. Waiving it is routine, and it is the reason to raise every issue before signing, not after.

What California does not allow in a settlement

California has rewritten these rules since 2019. An agreement that ignores them is unenforceable on that point.

  • Hiding the facts of a filed claim. Once a claim of sexual harassment, sexual assault, workplace harassment, discrimination or retaliation has been filed in court or with an agency, the settlement cannot stop you disclosing the facts. The amount may stay confidential.
  • Exposing you against your wishes. You can ask for your own identity, and facts that would reveal it, to be kept confidential. That option is not available where a government agency or public official is a party.
  • Silencing you about unlawful conduct in a separation agreement. A non-disparagement or confidentiality clause in an agreement about leaving a job must state, in substance: "Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful."
  • Stopping you from testifying. A clause that waives your right to testify about alleged criminal conduct or sexual harassment, when a court, agency or the Legislature calls you, is void.
  • Banning you from ever working there again. A settlement of an employment dispute may not bar you from future work with the employer. The exception is where the employer made a documented, good faith finding, before your claim was filed, that you yourself engaged in sexual harassment, sexual assault or criminal conduct.
  • Blocking a report to a government agency. You cannot be made to give up the right to file a charge with, or cooperate with, the Civil Rights Department or the federal Equal Employment Opportunity Commission. You can agree not to take money from such a charge.
  • Releasing what cannot be released. Unemployment benefits, wages that are plainly owed, and claims that have not happened yet. A workers' compensation claim needs its own approved settlement.

More detail on what stays private is in confidentiality in a sexual harassment case.

Time to consider, and time to change your mind

How long you have
Your situationTime to considerRight to cancel after signing
Separation or severance agreement, no claim filedAt least five business days, with written notice that you may consult a lawyer. You may sign sooner if you choose toNone under California law
You are 40 or older and releasing age claimsAt least 21 days, or 45 days in a group layoff. A reasonable time if a charge or lawsuit is already filedSeven days. Payment is not due until they pass
Negotiated settlement of a filed claim, under 40Whatever the agreement gives youNone. Signing is final

A deadline printed on a severance offer is the employer's deadline, not the law's. If you have been handed a document and a short fuse, have it read before the time runs out.

How a settlement is taxed

The agreement divides the payment into parts, and each part is taxed differently. The division has to reflect the real claims.

Tax treatment by part
Part of the paymentFederal tax treatmentHow it is reported
Lost wagesTaxed as wages. Income tax and payroll taxes are withheldForm W-2
Emotional distressTaxable income, with no withholding. Amounts that repay medical costs for that distress can be excluded if you did not deduct them earlierForm 1099
Physical injury or physical sicknessNot taxable. This can matter where the conduct included an assault that caused physical injuryGenerally not reported as income
Punitive damages and interestTaxableForm 1099
Attorney's feesCounted as your income even when paid straight to the lawyer. Federal law allows a deduction for fees in employment and civil rights claims, so that you are not taxed on money you never receivedForm 1099, with the deduction claimed on your return

One rule works in your favor in negotiation. Federal tax law denies an employer any deduction for a sexual harassment settlement that is subject to a nondisclosure agreement. An employer that insists on secrecy pays for it at tax time.

Tax on a settlement depends on your own position. Speak to a tax adviser before you sign, while the division of the payment can still be changed.

  • The agreement sets the date. Commonly within about 30 days of the last signature. If a seven day cancellation period applies, the clock starts after it.
  • Expect more than one check. A wage check with deductions, a second check for other damages, and a payment covering fees.
  • Funds usually pass through the law firm's client trust account. The firm deducts the agreed fee and case costs, pays anything owed to third parties, and gives you a written statement showing every figure.
  • The case is dismissed after payment. Not before.
  • If the employer does not pay, a court that kept power over the settlement can turn it into a judgment on a short motion. Many agreements add interest for late payment.
  • Payment in installments is sometimes proposed. If you agree, the full balance should fall due at once if a payment is missed.

If you received unemployment or disability benefits for the same weeks the wage portion covers, ask how the settlement affects them before you sign.

Before you sign

  1. Is the total written as a number, with a fixed payment date?
  2. How much is wages, and what will you receive after withholding?
  3. What exactly are you releasing, and against whom?
  4. Does anything you are owed fall outside the deal: final pay, vacation, commissions, expenses, stock, retirement benefits?
  5. Who may you tell, and what may you say if asked why you left?
  6. Does the non-disparagement clause bind the employer as well?
  7. What will the employer say to a future employer, and who will say it?
  8. What happens to your health coverage, and from what date?
  9. What does the agreement say you owe if you are accused of breaking it?
  10. Have you had tax advice on the division of the payment?

Questions people ask

How long after settling do I get paid?+

On the date the agreement states, commonly within about 30 days of the last signature. If you are 40 or older and releasing age claims, a seven day cancellation period runs first. Insist on a fixed date in the document.

Is a sexual harassment settlement taxable?+

Mostly yes. Lost wages are taxed as wages with withholding. Emotional distress damages are taxable income. Money paid for a physical injury or physical sickness is not taxed. Attorney's fees count as your income but can be deducted in employment claims. Get tax advice before signing.

Can my employer make me keep the settlement secret?+

It can require you to keep the amount confidential. If your claim was filed in court or with an agency, California law does not allow the agreement to stop you disclosing the facts of the harassment. You can ask for your own identity to be protected.

Can I still talk to the police or a government agency after I settle?+

Yes. A settlement cannot stop you reporting a crime, filing or cooperating with an agency charge, or testifying when a court, agency or the Legislature requires it. A clause that says otherwise is void.

Do I have to resign to settle?+

No law requires it, and some people settle and stay. Many agreements do record a departure, because the working relationship has already ended or both sides want it to. Whether you leave, and how it is described, is negotiable.

Can the agreement ban me from working there again?+

Generally no. Since January 1, 2020, a California settlement of an employment dispute may not bar you from future work with that employer, unless the employer documented a good faith finding, before your claim, that you engaged in sexual harassment, sexual assault or criminal conduct.

Can I change my mind after signing?+

Usually not. The exception is a worker aged 40 or older who releases federal age claims, who has seven days to cancel. Otherwise signing is final, including a term sheet signed at mediation.

Does settling mean my employer admitted the harassment?+

No. Almost every agreement states that the employer denies wrongdoing. That clause is standard and does not affect what you are paid or what you may say about the facts.

Who actually pays, the company or the harasser?+

Usually the employer or its insurer, and the release normally covers the individual as well. A harasser can be personally liable under California law, and in some cases contributes. Who pays does not change what you receive.

Will the settlement be public?+

With a private employer, no. The court file normally shows only that the case was dismissed. If the employer is a public agency, the agreement and the amount are generally public records.

I already signed a severance agreement. Is it too late?+

Not always. A release must be knowing and voluntary, must give something of value you were not already owed, and must meet California's notice and timing rules. It also cannot cover conduct after you signed. Have the document read.

Have the offer read before you answer it

If you have an offer or a severance document in hand, a short call will tell you what it releases, what it is missing and how long you have. It is free and confidential.

(800) 371-3088 or send what you have.

Related reading: what the public settlement figures show, what an employment lawyer costs, the full California sexual harassment guide, how long a case takes, forced arbitration, the filing deadlines, retaliation after a complaint, unemployment benefits after quitting, what to expect at a deposition, the toll harassment takes on your mental health, and California sexual harassment statistics.

Sources

  1. California Code of Civil Procedure section 1001: settlements may not restrict disclosure of the facts of a filed harassment claim; the amount and the claimant's identity may be protected.
  2. California Government Code section 12964.5: limits on releases and non-disparagement clauses, the required wording, and the five business day period.
  3. California Code of Civil Procedure section 1002.5: no bar on future employment in a settlement, with the stated exception.
  4. California Civil Code section 1670.11: a waiver of the right to testify about criminal conduct or sexual harassment is void.
  5. California Civil Rights Department, Separation and Settlement Agreements: Limitations.
  6. U.S. Equal Employment Opportunity Commission, Understanding Waivers of Discrimination Claims in Employee Severance Agreements: the 21, 45 and 7 day periods and the right to file a charge.
  7. U.S. Equal Employment Opportunity Commission, What You Can Expect After You File a Charge: agency mediation and how long it takes.
  8. Internal Revenue Service, Publication 4345, Settlements: Taxability.
  9. California Evidence Code section 1119: mediation confidentiality.
  10. California Code of Civil Procedure section 664.6: enforcing a settlement by judgment.

Legal Disclaimer: This page is provided for general informational purposes only and does not constitute legal advice. Employment law is complex and fact-specific. The information on this page reflects California law as of 2026 and may change. If you believe your rights have been violated, please consult a licensed California employment attorney to evaluate your specific situation.

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