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Changes to Civil Code Section 1542 Could Mean Your Severance Agreements Are Out Dated

Changes to Civil Code Section 1542 Could Mean Your Severance Agreements Are Out Dated

Many businesses who receive advice from their lawyers utilize standard agreements that have been prepared and reused by changing the name (to protect the innocent so to speak).  As an example, clients are often provided with a template for a severance agreement to use when terminating an employee.  The purpose of such an agreement, of course, is to offer some monetary severance in exchange for peace of mind – that is, in exchange for a total release of any potential claims the employee may have against the employer.  When doing so, employers must make certain that whatever form severance agreement they are using is correct and up to date.  For example, if the terminated employee is over the age of 40, that employee is protected under the Older Worker Benefit Protection Act and additional language (which includes a period of 21 days to consider the agreement and the ability to rescind that agreement within seven days of signing it) should be included if the employer wishes the employee to release any federal age discrimination claims.

One standard provision that should always be included in any severance and release agreement is a “1542 Waiver” – California Civil Code section 1542 provides that a general release, such as the one that is usually included in a severance agreement, does not cover claims that the employee does not currently know about or suspect exist.  That is, even if the employee generally agrees to release all claims against the employer, section 1542 says they aren’t waiving claims they don’t yet know exist.  A simple way around this conundrum is to include a “1542 Waiver” which indicates that the employee is aware of what section 1542 provides, and agrees to waive all claims, including those known and unknown at the time of signing the agreement.  The waiver should include the language of section 1542 as well, so that the employee cannot come back later and say they didn’t actually know about their rights under the Civil Code.

Effective  January 1, 2019 the general release language to release known and unknown claims has been slightly amended to read as follows:

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.

The text below reflects the changes made to the previous Section 1542 language:

A general release does not extend to claims which 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, which and that if known by him or her, must would have materially affected his or her settlement with the debtor or released party.

If you are a California employer, you should change any template severance agreement you may be using to reflect the changes above.  If you need assistance in drafting a custom agreement, or have any other questions about protecting yourself and your business when terminating employees, you can contact any of McCormick Barstow’s Labor and Employment attorneys for assistance.

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