Login | April 21, 2019

Be cautious with settlement releases

Law Bulletin columnist

Published: July 10, 2018

A California appellate court’s recent ruling reminds us of the importance of specificity and context in settlement agreements meant to release certain claims.

In Camacho v. Target Corp., a former Target cashier’s employment discrimination claim was revived when the appellate court disagreed with the trial court’s holding that the employment claims were released by a prior settlement of the plaintiff’s workers’ compensation case.

On appeal, the court held that the workers’ compensation settlement agreement was narrowly drafted to release only claims in the workers’ compensation context and therefore did not effect a release of Camacho’s employment claims.

Plaintiff Adrian Camacho brought claims of discrimination based on sexual orientation and harassment causing a hostile work environment, among others, against defendant Target Corp. in August 2015.

Camacho alleged that he was subject to ongoing verbal harassment and ridicule from his co-workers based on the fact that he is gay. After repeatedly reporting the conduct to his supervisor and to human resources, Camacho claimed that he was retaliated against and denied a promotion. He resigned in September 2014.

Prior to resigning, however, Camacho initiated a workers’ compensation case for recovery of damages for injuries incurred due to the alleged workplace harassment, including head and neck pain and digestive and psychological problems.

He settled his workers’ compensation claim in March 2015 before initiating the employment discrimination case that was ultimately the subject of the appeal.

The settlement of claims under state workers’ compensation law in California is accomplished by the execution of a standard, pre-printed form agreement, thus accomplishing the settlement and release of only those claims within the scope of the workers’ compensation system.

The form release stated, in relevant part, “[e]xecution of this form has no effect on claims that are not within the scope of the workers’ compensation law or claims that are not subject to the exclusivity provisions of the workers’ compensation law, unless otherwise expressly stated.”

Target agreed that this form agreement did not result in a global release of claims, but argued that its one-page Addendum A must be construed to have released all of Camacho’s claims (including those employment claims he sought to pursue in the separate civil action).

Addendum A contained a broader release statement, namely that the amount paid in settlement released claimed damages “or any other claims for reimbursement, benefits, damages or relief of whatever nature, … ”

However, recovery for workers’ compensation claims does not generally preclude recovery of damages pursuant to civil employment actions. In fact, the court noted, “[t]he [l]egislature ‘did not intend that its objective of providing relief from civil rights violations would be defeated by the exclusive remedy provision of the workers’ compensation act.’”

Bolstered by a prior decision that required any additional release of claims outside the workers’ compensation system to be stated in “clear and nontechnical language,” the California appellate court disagreed with Target’s characterization of its Addendum A.

The court also relied on the general rules of contract construction, considering the settlement agreement as a whole and giving force and effect to all provisions when reasonably possible.

In light of the context in which the settlement agreement was executed, and in the absence of clear and nontechnical release language, the court held that Addendum A was not intended by the parties to serve as a general release of all claims. Rather, the language of the agreement made clear that “this settlement agreement pertains to any and all claims related to Camacho’s workers’ compensation claims” and nothing further.

Based on this decision, Camacho may now return to the trial court and continue to pursue his employment discrimination, harassment and other related claims.

This sends an important message to apply caution when entering into settlement agreements, particularly in certain areas of law such as workers’ compensation, that may have unique rules specific to effecting a release of claims.

Laura B. Bacon of Nixon Peabody LLP focuses her practice on commercial litigation and labor and employment. She represents clients in both state and federal courts in addition to various administrative venues.