2019 Revision of California Civil Code Section 1542 Requires Updates to Releases and Separation Agreements

When formally settling a legal claim with another party in California, the typical and preferred course of action is to obtain a release of all known and unknown claims that the other settling party may have relating to the subject matter of the release. This prevents the other settling party from coming back with another claim if he or she later discovers a basis for a potential claim arising from the same set of facts, of which the other party was unaware at the time of the settlement.

As many of you reading this article will already know, in order to obtain a full release of both known and unknown claims under California law, the release must cite the language of California Civil Code Section 1542, and contain a clean and unambiguous waiver of the protections of the statute, since the statute is intended to prevent the person releasing claims from inadvertently waiving unknown claims merely by signing a general release.

The purpose of this article is to alert our readers to the fact that California Civil Code Section 1542 was amended, effective January 1, 2019 to read as follows:

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

Accordingly, if you or your company are using template forms of settlement agreements, general releases, or employee separation or severance agreements, the purpose of which is to obtain a release of all known and unknown claims from the other settling party, it is imperative that you immediately update those agreements to include the statutory language quoted above.