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2019 Legislative Changes for California Severance and Settlement Agreements

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Employers often find themselves in a bind – they need to let an employee go quickly and they want the employee to sign a release of all claims, so they dust off the severance agreement they used last time around, change the name and payment terms, and present it to the employee. Attorneys will warn against this practice, reminding the employer that each severance agreement should be drafted on an individual basis to address changes in the law and the facts surrounding the individual termination. There was such a change in the law effective January 1, 2019. Virtually all severance and settlement agreements require that the individual release all known and unknown claims. To do that effectively in California, the agreement must contain language from California Civil Code section 1542. That language has just changed, so agreements drafted prior to January 1, 2019 will not have the updated language. The new version of California Civil Code section 1542 states 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.” This is the language that should now be included in California severance and settlement agreements.