Takeaway: A release of liability for wrongful termination signed before the employee’s last day of work did not violate a provision of California law prohibiting pre-dispute releases of liability because, at the time the employee signed the agreement, she already believed that the decision to terminate her was based on age discrimination.
An employee who signed a separation agreement containing a release of liability could not bring claims for wrongful termination and age discrimination against her former employer, a California Court of Appeal recently ruled.
The release did not violate the state’s Civil Code Section 1668, which prohibits pre-dispute releases of liability in some circumstances, because the employee signed the separation agreement after she was informed of the decision to terminate her but before her last day on the job.
At the time she signed, she already believed that the decision to terminate her was based on age discrimination, the appeals court said. Therefore, the alleged violation of the California Fair Employment and Housing Act (FEHA) had already occurred. The release did not violate Section 1668 because it was not a release of liability for future unknown claims, the court explained.
Terms of Agreement
The employee worked for the employer as its controller and vice president of accounting. In November 2018, the company told her that her employment would be terminated effective Dec. 31 of that year. The parties entered into a separation agreement, in which the employer agreed to pay the employee a severance payment in consideration for a full release of all claims, including “a release of age discrimination claims that she has or may have under federal and state law.”
In return for her release of claims, the employee was to receive more than $135,000. She left her employment on Dec. 31 and accepted the money due her under the agreement.
On Aug. 13, 2019, the employee filed a complaint against the company, alleging age discrimination and wrongful termination in violation of FEHA. The action was submitted to binding arbitration, pursuant to an arbitration agreement executed in 2013.
The arbitrator ruled that the parties intended the release to extend to all claims that accrued through Dec. 31, 2018, and that applying the release to claims that accrued after the date of signing would not violate Civil Code Section 1668. Accordingly, the arbitrator ruled in favor of the company, dismissing the employee’s claims. The trial court affirmed the arbitration award, and the employee appealed.
Releases of Liability
Civil Code Section 1668 precludes releases of liability for future violations of law—that is, where the facts giving rise to the offense have not yet occurred, the appeals court noted.
The doctrine generally applies to invalidate releases only when the provision at issue purports to contract away liability for future unknown claims, such as when a party is required to sign a pre-dispute release of liability against future unknown acts in order to obtain services from a provider.
For example, California’s highest court has held that a release was void when a hospital required patients, as a condition of admittance, to release the hospital from liability for future acts of negligence by employees, the court said. Patients were required to execute the release before they received any treatment and before any negligent act had occurred. Accordingly, the patient had no way of knowing at the time of execution whether the hospital employees would act negligently or what the negligent acts would be.
Virtually all cases in which releases have been invalidated under Section 1668 have arisen in similar factual scenarios, where the release is executed before a dispute has arisen between the parties or when the future claim is not known to the releasing party, the court said.
The employee did not cite a single case in which Section 1668 was invoked to invalidate a release of a claim that was known to the releasor at the time the release was executed and after a dispute had already arisen between the parties, the court noted.
The employee also made no attempt to revoke the agreement either before or after receiving payment.
Her claims, therefore, all flowed from the decision to terminate that is embodied in the separation agreement, the court said. Because the employee knew the facts underlying her claims at the time she entered into the agreement, the release does not implicate the policies that have led courts to invalidate releases under Section 1668, the court concluded. It upheld the trial court’s decision affirming the arbitration award in favor of the employer.
Castelo v. Xceed Financial Credit Union, Calif. Ct. App., No. B311573 (May 18, 2023).
Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.
