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Supreme Court Upholds Release Of Claims Language Commonly Used In Employment Terminations

By: Stephen P. Wiman
11/18/08

The California Supreme Court's decision in Edwards v. Arthur Andersen LLP is perhaps best noted for its impact on noncompetition clauses under California law (see previous e-alert by clicking here).  Although the noncompetition issue is, perhaps, the higher profile portion of the decision, the Court also addressed employers' practice of seeking releases from their terminated employees purporting to release the employer from "any and all" claims against it by the employee.  At issue was whether the phrase "any and all" in the release was so broad,  encompassing nonwaivable statutory rights that protect employees, that it rendered the release entirely void.  Upholding such a release and limiting the effect of the "any and all" language, the Court stated that:

a contract provision releasing "any and all" claims generally does not encompass nonwaivable statutory protections, and in particular does not implicitly apply to an employee's right to indemnification from the employer.

In the case, the plaintiff Edwards argued that, by requiring him to sign a release of "any and all" claims against his former employer Arthur Andersen, the release violated his right to statutory indemnification under Labor Code Sections 2802 and 2804.  Collectively, these Labor Code sections grant an employee a nonwaivable right to indemnification from his or her employer for the employee's losses that are directly attributable to the employee's performance of his or her job duties. 

The main issue for the Court was whether the party seeking the release, in this case Arthur Andersen, could be found to have intended for the release to encompass nonwaivable claims.  If so, then the entire release would be void.  Looking to decisions relating to general principles of contract interpretation, the Court found that where, as here, a contract provision is unclear, California law prefers that the provision be interpreted so that it is enforceable.  For that reason, the Court held that the phrase "any and all" should be interpreted to exclude nonwaivable protections so that the release would not be rendered void.

As a second rationale, the Court noted that some California case law indicates that the parties to a contract are presumed to know the law.  The Court found that these cases arguably supported Arthur Andersen's contention that it did not need expressly to exclude nonwaivable statutory protections, such as Labor Code section 2802, because the parties were presumed to have known that such protections were nonwaivable.

Based on these two rationales, the Court's holding now makes clear that a general release of "any and all" claims is not presumed to encompass nonwaivable statutory protections.  In view of the Court's ruling, if you have any questions regarding the language in any release of claims that you seek from your employees, or others, you should seek legal counsel.

Steve Wiman is a Partner in Nossaman's Los Angeles office and can be reached at 213.612.7818 or swiman@nossaman.com.

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