Employee Separation Agreements and General Releases - Not a Bulletproof Solution!

The decision to terminate an employee is never easy, especially if the separation is contentious. To mitigate the risk that a disgruntled employee later sues the employer for discrimination or violations of California wage and hour laws, an employer may require the employee sign a separation agreement and general release of any and all claims against the employer. However, even if the employee willingly signs the agreement the employer is not “out of the woods.”

California law is unsettled as to whether the employee can still bring some later claims against the employer. This is especially true with respect to claims brought under the California Private Attorneys General Act (“PAGA”). PAGA provides that an employee may recover damages and penalties against an employer for failure to properly compensate the employee for hours worked, overtime, and/or failure to provide meal and rest breaks. In 2014, the California Supreme Court ruled in Iskanian v. CLS Transportation Los Angeles that an employee’s explicit waiver of PAGA claims in his employment agreement was not enforceable because it disabled “one of the primary mechanisms for enforcing the Labor Code.” Thus, the employee could still sue for damages and penalties under PAGA.

In Kim v. Reins Int’l California, Inc., the California Supreme Court held that even if the employee accepts a settlement amount from the employer for some litigated claims, the employee still has the right to later bring PAGA claims against the employer. However, both Iskanian v. CLS Transportation and Kim v. Reins Int’l California, Inc. dealt specifically with employee claims settled in arbitration, and explicit waivers of PAGA claims. It remains to be seen whether employment and separation agreements containing “covenants not to sue” the employer, or general releases of “any and all claims, existing now or in the future” prevent the employee from later bringing PAGA claims against the employer.

Ultimately, this leaves an employer or small business owner/operator in a bit of a quandary! The employer is left guessing about which terms included in their employment or settlement agreements will properly insulate them from litigation. Further, they cannot possibly anticipate the laundry list of all claims a disgruntled employee might bring against them. Thus, the employer can never truly rest easy knowing they put definitive end to the contentious employment relationship.

At Poole Shaffery & Koegle, LLP, our staff has helped small businesses navigate these treacherous waters. If you need help setting up your employment agreements, employee handbooks, and separation agreements/releases, contact our offices to speak with an experienced attorney that specializes in helping businesses like yours to survive and thrive.