Supreme Court Holds That Release of “Any and All” Claims Cannot be Read to Include Non-Waivable Claims

The Supreme Court published a curious opinion this morning in Edwards v. Arthur Andersen, LLP (2008) __ Cal.4th __. Focusing on a non-competition agreement and two provisions in a release agreement called a Termination of Non-Compete agreement (TONC), the court analyzed whether the provisions violated public policy, and therefore met the third element (an independently wrongful act) of a cause of action for wrongful interference with prospective economic advantage.

the Court of Appeal held: (1) the noncompetition agreement was invalid under section 16600, and requiring Edwards to sign the TONC as consideration to be released from it was an independently wrongful act for purposes of the elements of Edwards’s claim for intentional interference with prospective economic advantage; (2) the TONC purported to waive Edwards’s indemnification rights under the Labor Code and was therefore in violation of public policy and an independently wrongful act; and [a third issue].

The Supreme Court only reviewed the first two issues, and decided that the non-competition agreement was a violation of public policy, but that the waiver of indemnity rights was not a violation of public policy because

a contract provision whereby an employee releases “any and all” claims does not encompass nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802.

So because the release should not have been construed to actually release "any and all claims," including claims arising out of non-waivable rights, it did not violate Labor Code § 2804.

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.

Here's how they reached that conclusion. The opinion includes the full language of the "broad general release" Edwards was asked to execute in Arthur Andersen’s favor. Section (1)(d) of the TONC provided that Edwards must release and discharge Andersen from

“any and all actions, causes of action, claims, demands, debts, damages, costs, losses, penalties, attorneys’ fees, obligations, judgments, expenses, compensation or liabilities of any nature whatsoever, in law or equity, whether known or unknown, contingent or otherwise, that Employee now has, may have ever had in the past or may have in the future against any of the Released Parties by reason of any act, omission, transaction, occurrence, conduct, circumstance, condition, harm, matter, cause, or thing that has occurred from the beginning of time up to and including the date hereof, including, without limitation, claims that in any way arise from or out of, are based upon or relate to Employee’s employment by, association with or compensation from [Andersen] or any of its affiliated firms, except for claims (i) arising out of [Andersen’s] obligations set forth in this agreement or (ii) for any accrued and unpaid salary or other employee benefit or compensation owing to Employee as of the date hereof.”

The trial court had concluded that, as a matter of law, this release, though broadly worded, could not be construed to mean that Edwards was being asked to surrender any and all claims arising under Labor Code provisions establishing rights that cannot be waived. The Court of Appeal disagreed, finding that the broad language only excluded the expressly excepted claims, and therefore, the TONC agreement was unlawful or void under Labor Code § 2804. (“Any contract or agreement, express or implied, made by any employee to waive the benefits of this article or any part thereof, is null and void, and this article shall not deprive any employee or his personal representative of any right or remedy to which he is entitled under the laws of this State.”) Although the Court of Appeal noted that the TONC did not expressly waive Edwards’s indemnity rights, “[a] broadly worded release covers all claims within the scope of the language, even if the particular claim is not expressly listed.” Bardin v. Lockheed Aeronautical Systems Co. (1999) 70 Cal.App.4th 494, 505. In other words, "any and all" means "any and all," not just those which are listed, and for which a release is lawful.

The Supreme Court disagreed. You simply cannot construe "any and all claims" to include claims arising from unwaivable Labor Code rights unless the agreement expressly purports to include such an unlawfully broad release. As Clintonesque as it sounds, the Supreme Court said "the meaning [of the phrase 'any and all'] is in dispute and uncertain; we must therefore decide what the phrase 'any and all' means." The court then went on to say that because the agreement was ambiguous, it should be construed under the rule of interpretation that says you prefer an interpretation that makes an agreement lawful, over another interpretation that renders it unlawful. The Court relied upon Civil Code § 3541 (“an interpretation which gives effect is preferred to one which makes void”) and Civil Code § 1643 (“a contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect”.)

The TONC did not expressly reference indemnity rights, and we should not read it as encompassing a waiver of Edwards’s indemnity rights.  Giving the TONC such a reading is consistent with the tenets of contractual interpretation because it makes the contract lawful, valid and capable of being carried into effect.

We worry that this case is going to be misunderstood, as Justice Kennard's dissent explained:

As the Court of Appeal explained, quoting from Latona v. Aetna U.S. Healthcare Inc. (1999) 82 F.Supp.2d 1089, 1096: “ ‘[D]efendant’s argument, that the Agreement cannot violate public policy because . . . it is simply a nullity, ignores the realities of the marketplace. . . . Employees, having no reason to familiarize themselves with the specifics of California’s employment law, will tend to assume that the contractual terms proposed by their employer . . . are legal, if draconian. . . . Thus, the in terrorem effect of the Agreement will tend to secure employee compliance with its illegal terms in the vast majority of cases.’ ”

The dissent also discussed how the language of the TONC actually expressly included a release of claims such as those for "expenditures or losses" arising from employment, which is precisely the kind of agreement that Labor Code § 2804 prohibit. We agree, and if anything, think the dissent understates the problems. We see a greater potential for mischief in the acceptance of the in terrorem clauses.

There are going to be many more employers demanding broad releases and, even where plaintiffs are represented, shrugging off demands for more specific and limited release language by saying "any and all" doesn't really mean "any and all". Then, later, the same employers are going to take the broad language of these releases and tell employees "'any and all' means 'any and all'" and they are going to tell inexperienced lawyers that "'any and all' means 'any and all'", and they are going to go into mediations and convince mediators that "'any and all' means 'any and all'" and they are going to argue to judges that "'any and all' means 'any and all'," and some of them are going to be persuaded, and miscarriages of justice will follow.

But don't take our word for it. You can read the entire text of Edwards v. Arthur Andersen, LLP for yourself by downloading it here in pdf or word format.

Comments

I usually agree with your views on newly published cases but I thought you were overreacting about the any and all language until I saw how happy the folks at Littler were about this part of the decision.

http://www.littler.com/presspublications/index.cfm?event=pubItem&pubItemID=19533

[Madeleine]

I was recently laid off by a big telecommunications company where I was place out of California. I have a severance package and in it, states, "This general release and waiver also does not release any claims that cannot be released as a matter of law, including but not limited to any rights I may have to indemnification under California Labor Code Section 2802." What does this mean? Thank you in advance for your help!