Ex-employee had agreed to fully release all claims in exchange for severance payment
In a recent case, an employer successfully asked the court to reject a complaint where a former employee alleged that a release of claims violated section 1668 of the Civil Code, which prohibited pre-dispute releases of liability in certain circumstances.
Xceed Financial Credit Union employed the plaintiff in the case of Castelo v. Xceed Financial Credit Union as its controller and vice president of accounting. In November 2018, Xceed told her that it would terminate her employment effective Dec. 31, 2018.
On Nov. 19, 2018, the parties signed a separation and general release agreement. Here, Xceed agreed to give the plaintiff a severance payment of $137,334.00 less federal and state withholdings in exchange for a full release of all her claims, including potential age discrimination claims under federal and state law.
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In August 2019, the plaintiff sued Xceed for wrongful termination and age discrimination under the Fair Employment and Housing Act (FEHA).
In response, Xceed argued that the release barred the plaintiff’s complaint. It also filed a cross-complaint alleging a breach of the separation agreement. The parties agreed to submit their case to binding arbitration in line with a 2013 arbitration agreement.
The arbitrator issued an award in Xceed’s favor. The arbitrator found that the release barred the plaintiff’s claims, that the parties intended the release to cover all claims accruing until the end of 2018, and that applying the release to claims accruing after the signing date would not violate section 1668.
That provision states that “all contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.”
Ex-employee’s claims denied
The trial court confirmed the arbitration award, which prompted the plaintiff to appeal. The California Court of Appeal for the Second District issued a judgment agreeing with the trial court’s decision.
The release did not violate public policy under section 1668 because it did not release liability for future unknown claims, the appellate court held. Rather, the release promoted the strong public policy in favor of settling disputes, the appellate court said.
The appellate court explained that the plaintiff signed the separation agreement:
- after Xceed informed her that it decided to terminate her
- after Xceed made the decision alleged to be discriminatory
- after she believed that her employer was wrongfully terminating her due to age discrimination
- after she knew the basic facts forming the basis for her wrongful termination and age discrimination claims
- after the alleged FEHA violations had already occurred
The plaintiff knew that her last day on the job would be Dec. 31, accepted the severance pay in exchange for releasing her claims, and made no attempt to revoke the agreement before or after receiving this payment, the appellate court noted. The plaintiff failed to allege that Xceed committed any new, independent acts of discrimination after the signing date, the appellate court added.
