©2024 Seyfarth Shaw LLP www.seyfarth.com 2024 Cal-Peculiarities | 361 13.4 Separation Agreements 13.4.1 Limitations on broad releases of claims Settlement agreements, including severance or separation agreements presented to some employees upon termination of employment, typically provide for a general release of any claims the former employee may have against the employer. California imposes obstacles to the use of broad release language. Waiver of unknown claims. A California statute provides that a general release does not include unknown claims.23 That is why California settlement agreements often contain explicit language purporting to waive the protection of this statutory provision. Waiver of unwaivable statutory protections. Courts often uphold a general release of “any and all claims and causes of action” as not applying to claims that, as a matter of law, cannot be waived. The Court of Appeal held that this kind of language impermissibly purports to waive a former employee’s unwaivable right to indemnification,24 and that the employer’s insistence on this general release, with no appropriate carve-out, violated public policy.25 The California Supreme Court, fortunately, ruled that such a superfluous carve-out was unnecessary: a contract provision whereby an employee releases “any and all” claims does not encompass nonwaivable statutory protections.26 Employers generally have finessed the issue with release language specifying what had always seemed obvious—that the release agreement does not cover any right that, as a matter of law, cannot be waived. Employers should, however, take note that as of January 1, 2024, California law explicitly voids any noncompete provision in an employment contract unless it meets the narrow exceptions of Business and Professions Code section 16600 et seq.27 Furthermore, employers are subject to a February 14, 2024, deadline to notify current and former employees who had signed an employment agreement containing a noncompete provision that it was now void in the state. 13.4.2 Release of claims for wages Employers settling accounts with a departing employee often consider making the payment of a bonus, or other deferred compensation, a part of the settlement package, in an effort to gain additional leverage over the employee. This practice can backfire in California. Labor Code section 206.5 makes it a misdemeanor for an employer to “require the execution of any release of any claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of such wages has been made.” Any such release is null and void.28 The Court of Appeal has recognized, however, that enforceable agreements can settle wage claims so long as there was a “good faith dispute” as to whether the wages were owed.29 13.4.3 Release of USERRA claims Federal USERRA claims30 can be released, much like other statutory claims, so long as the release of the USERRA claim is “clear, convincing, specific, unequivocal, and not under duress.”31 But not in California. One Court of Appeal decision ruled, without careful analysis, that a broad release of state and federal claims was unenforceable as to USERRA claims.32 The plaintiff learned of his dismissal upon returning to work from a military leave. He signed an agreement that promised him six weeks’ salary in exchange for his release of claims under any “federal or state law … relating to claims or rights of employees.” The plaintiff signed the agreement to get the money and then sued under USERRA.
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