In May 2023, the California Court of Appeals for the Second District decided Castelo v. Xceed Financial Credit Union (“Castelo”). In Castelo, Elizabeth Castelo sued her former employer Xceed for wrongful termination and age
discrimination in violation of the Fair Employment and Housing Act (FEHA). The case was submitted to binding arbitration pursuant to the stipulation of the parties.

The arbitrator granted summary judgment in favor of Xceed on the ground Castelo’s claims were barred by a release in her separation agreement. The arbitrator rejected Castelo’s assertion that the release violated Civil Code section 1668, which prohibits pre-dispute releases of liability in some circumstances. Castelo moved to vacate the arbitration award, arguing the arbitrator exceeded his powers by enforcing an illegal release. The trial court denied the motion to vacate and entered judgment confirming the arbitration award.

The Court of Appeals affirmed summary judgment in favor of Xceed. The Appellate Court determined the arbitrator had correctly ruled the release did not violate Civil Code section 1668. Castelo had signed the separation agreement after she was informed of the decision to terminate her but before her last day on the job. At the time she signed, she already believed that the decision to terminate her was based on age discrimination and that she had a valid claim for wrongful termination.

The alleged violation of FEHA had already occurred, even though the claim had not yet fully accrued. Therefore, the Appellate Court found the release did not violate section 1668 because it was not a release of liability for future unknown claims.

When terminating employees, it is essential that employers consider provision of severance if a separation agreement with a general release is executed by the soon to be former employee. Contact your employment attorney to draft the Agreement to assure it is enforceable and, to the extent possible, to assure it waives all claims that the terminated employee may have against you as the former employer.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.