A waiver or release of liability is a standard provision in many types of contracts, especially settlement and separation agreements. For example, when an employee leaves a job, an employer will typically require the employee to sign a severance or separation agreement that waives their rights to sue and releases the employer from liability for future claims. However, in order for such a provision to be enforceable, it must comply with state law. In California, Civil Code § 1542 sets forth the requirements for waivers or releases.
While a waiver or release may be limited to certain types of claims or restrictions, parties often want a general release that is much broader in scope. In a general release, a party agrees to waive the right to sue for future known and unknown claims from the beginning of time to the settlement or termination date. Many states allow general releases. However, in California, releases must comply with § 1542 in order to be valid.
Under California law, general releases cannot release claims that are unknown to the releasor unless there is a clear and conscious waiver of unknown claims. Section 1542 provides:
A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.
In order for a release to apply to unknown claims, a party must be informed of § 1542 and then waive their right to sue for unknown claims. The intent of this law is to ensure that parties do not mistakenly waive unknown claims by signing a general release.
The language of § 1542 must be included in the agreement.
Understanding Civil Code § 1542 is important for any party signing an agreement. California businesses should check their existing contracts to ensure they reflect the law and consult an attorney about their potential rights and liabilities. Contact Romano Law to learn how we can help.
Carlianna Dengel is admitted to practice law in New York and California.