California Supreme Court construes validity of employees' release agreements

Last Thursday, the Supreme Court issued its decision in Edwards v. Arthur Andersen, LLP (August 7, 2008) __ Cal.4th __.  That decision addressed two questions, but the one of interest is the second of the two issues, which asks, "[I]s a contract provision requiring an employee to release “any and all” claims unlawful because it encompasses nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802?"  (Slip op., at p. 1.)  The answer, according to the Supreme Court, is no, but only because "any and all" is ambiguous, requiring resort to statutory presumptions that legal contructions are to be preferred over illegal constructions:  "[A] contract provision releasing 'any and all' claims does not encompass nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802 and, accordingly, is not void under Labor Code section 2804." (Slip op., at pp. 18-19, 21.)  The reaction to that holding is what interests me for purposes of this post.

While I routinely examine new appellate decisions, I first learned about Edwards through a post at WageLaw.  What caught my eye in the post was the statement that, as Justice Kennard mentioned in her dissent, the case may be misunderstood, to the detriment of employees.  Thus, I had to read the opinion for myself to see whether I agreed that negative consequences are likely.  Having read and considered the opinion, and although I habitually agree with WageLaw's analysis, I don't believe that this case presents the risk articulated by Justice Kennard and WageLaw.

The Supreme Court was faced with two possible outcomes to the question of how to construe a release of "any and all" claims, when the language could potentially waive claims that are statutorily nonwaivable.  The first option was to declare such a release entirely void.  The second option was to construe the release as encompassing only those claims that can be lawfully released.  The Supreme Court selected the second option.

Justice Kennard (with Justice Werdegar concurring) argues that the release may have been devised to trick employees into not bringing indemnity claims, even though such a release was void:

“As the Court of Appeal observed, Andersen’s actions suggest a possible purpose of misleading employees into thinking they had waived rights that could not be waived, thereby minimizing the number of indemnity claims these employees might bring against Andersen.

(Slip dissent, at p. 5.)  While Andersen's actions may have been intentional, I don't see why the intent is a significant factor in analyzing whether employees will be deceived.  An innocently vague release of "any and all" claims may also cause an employee to relinquish a statutorily protected claim out of the mistaken belief that it had been released.  In fact, had the Supreme Court declared such releases completely void, the use of such a release could still trick employees into believing that they had released claims when they had not.  Ultimately, an employee needs to seek legal counsel if they have any question about the extent of their rights with respect to releases, or any other employment issue.  The value of the Edwards decision is that a definitive ruling has found that general release language cannot be construed as any sort of release or waiver of statutorily protected claims or rights.  The concerns about its negative consequences are, I think, overstated.