Cannabis Control Commission - Finding 4

The Cannabis Control Commission did not have a documented and transparent process for employee settlement agreements, including those containing non-disclosure, non-disparagement, or similarly restrictive clauses.

Overview

CCC did not have a documented process for entering into, reviewing, and finalizing its employee settlements during the extended audit period, January 1, 2019 through December 31, 2024. The table below summarizes the dates, amounts, and payment methods of the two employee settlement agreements CCC entered into during the extended audit period. Additionally, as of the conclusion of our audit, there was one other settlement agreement still in the process of being executed; therefore, it was not made available to us for review.

Were Allegations Specified in the Agreement?	Year Signed	Amount	Method of Payment	Did the Agreement Include Non-disclosure, Non-disparagement, or Similarly Restrictive Clauses?
Yes*	2023	$5,000.00	Internal Revenue Service Form 1099	Yes
Yes**	2023	$92,969.75	Payroll	Yes

*    The allegations associated with this settlement were for claims of alleged sexual and racial discrimination, subjection to a hostile work environment based upon sex and race, and failure to provide equal pay in violation of state and federal statutes.

**  The allegations associated with this settlement were for claims of defamation, interference with rights under the Family and Medical Leave Act, retaliation for family medical leave, invasion of privacy, subjection to intentional infliction of emotional distress, and intentional interference with business relationships, all in violation with common law and various state and federal statutes.

If CCC does not have a documented and transparent process, which would hold CCC accountable, to handle employee settlement agreements, especially those containing non-disclosure, non-disparagement, or similarly restrictive clauses, then it cannot ensure that employee settlements are handled in an equitable, ethical, legal, and consistent manner. 

Authoritative Guidance

The Office of the Comptroller of the Commonwealth’s (CTR’s) “Settlements and Judgments Policy”¹⁸ states,

Departments may not process payments or adjustments for a settlement, judgment, or administrative award as a routine payroll entry, but must follow this policy to ensure appropriate tax reporting, withholdings, and funding.

Although CCC is not required to follow this policy, we consider it a best practice that individual Commonwealth agencies create agency-specific policies based on CTR’s policy for employee settlement agreements.

Reasons for Issue

CCC management stated that they do not have a process for administering employee settlements because they occur infrequently and are handled on an ad hoc basis.

Recommendations

1. CCC should develop, document, and implement a policy related to employee settlement agreements in accordance with CTR’s guidance.
2. CCC should refrain from using employee settlement agreements that contain non-disclosure, non-disparagement, or similarly restrictive clauses and should implement a policy regarding the use of employee settlement agreements to promote a transparent and equitable process.

Auditee’s Response

CCC’s Recommendation 1 response was as follows:

On January 27, 2025, following the audit period, the Governor issued a directive which formalized the prohibition of the use of non-disclosure language in settlement agreements. Despite being an independent agency which is not under the direction of the Governor’s Office, the CCC has adjusted its procedures to no longer include non-disclosure language. The Agency will formalize a policy for employee settlement agreements in accordance with CTR’s revised guidance and provide said policy to the [Office of the State Auditor] within 60 days.

CCC’s Recommendation 2 response was as follows:

This recommendation is overly broad. Settlement agreements are an important tool to resolve disputes before resorting to costly and time-consuming litigation. Per the Governor’s policy, the CCC has discontinued the use of [non-disclosure agreements]. See above response to Recommendation 1.

Auditor’s Reply

CCC stated in its response that it will adjust its procedures to no longer use non-disclosure language as well as formalize a policy for employee settlement agreements in accordance with CTR’s revised guidance. While these are forward-looking steps, we also encourage CCC not to use settlement agreements containing non-disparagement or similarly restrictive clauses. We look forward to receiving a copy of the new policy, and as part of our post-audit review process, we will follow up on this matter in approximately six months.

18.    CTR updated this policy on May 12, 2025, which was between the end of the audit period and the publication of this report. In this report, we reference the policy as it was documented during the audit period (unless stated otherwise).

Date published:	August 14, 2025