California Updates Waiver Language Common In Settlement Agreements
The California legislature recently updated the language of waivable language in California Civil Code Section 1542 that is intended to prevent a party signing a general release of claims from inadvertently waiving unknown claims. Lawmakers have said the change is intended to provide clarity, particularly to individuals who are self-represented.
Virtually all settlement agreements with a California nexus - including those resolving disputes between businesses and between employers and employees - include what is known as a California Civil Code Section 1542 waiver. That section provides that a release of claims doesn’t extend to those that were not known or suspected to exist, and if known would have “materially affected” the settlement; however, that section’s protections are waivable if specifically referred to and waived in the settlement agreement.
Prior to the amendment, Section 1542 provided:
“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”
The language of Section 1542 has been updated, effective Jan. 1, 2019, to read:
“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.”
This revised version does not represent wholesale changes, so much as tweaks in language. The state Senator who spearheaded the legislation behind the amendments said the new version would “avoid needless confusion” and “costly litigation,” particularly among self-represented individuals, by removing potential confusion. Parties involved in litigation or other matters requiring a release of claims in California will need to make sure that any future settlement agreements include the updated Section 1542 language in order to ensure the waivers are enforceable.