Court of Appeal: Employee Repudiated Settlement Agreement

So, Thomas Ferguson was a bad policeman, having been picked up in a sting, for soliciting a prostitute.  Facing discharge, he made a deal with his employer, Cathedral City, and settled for a suspension. But part of the settlement depended on the resolution of criminal charges pending, i.e., if he was found guilty, he would resign.  Ferguson's lawyer wrote the city, complaining they were trying to influence the DA in Ferguson's criminal case. He went too far, though, and said the settlement agreement was void.  No settlement agreement, no suspension.  The city fired Ferguson, even though his NEW lawyer tried to take back the repudiation of the settlement.

No dice. Upholding the discharge, the Court of Appeal addressed repudiation of a contract and a settlement agreement in particular:

once Ferguson committed his anticipatory breach on June 23, 2007, the City could then elect its remedies, which in this instance meant the reinstatement of Ferguson‟s discharge. The City was no longer bound by the separation agreement and was excused from further performance: “The real operation of a declaration of intention not to be bound appears to give the promisee the right . . . to act upon the declaration and treat it as a final assertion by the promisor that he is no longer bound by the contract, and as a wrongful renunciation of the contractual relation into which he has entered. If [the promisee] elects to pursue the latter course, it becomes a breach of contract, excusing performanceon his part and giving him an immediate right to recover upon it as such. Upon such election the rights of the parties are to be regarded as then culminating, and the contractual relation ceases to exist, . . . [Emphasis added.]”

In English, the employer has two options: treat the agreement as canceled, relieving the employer of obligations under the settlement agreement (such as a neutral reference, COBRA, unpaid settlement sums), or sue for breach of the agreement to recover the settlement proceeds and any damages occasioned by the breach.

Of note, the court held also that Ferguson's attorney had the power to repudiate Ferguson's agreement.

Although a public sector case, the discussion re breach of settlement agreements is generally applicable.

The case is Ferguson v. City of Cathedral City and the opinion is here.

Court of Appeal: Breach of Contract Against Employer for Breach of Settlement Confidentiality

Sanchez was a county labor relations manager for San Bernadino County. She became romantically involved with a union official, Erwin. Their respective employers negotiated labor relations memoranda of understanding. At some point, their relationship became known and unacceptable to the county's brass. The County thought a romance between labor negotiators on opposite sides of the table might constitute a conflict of interest. So sensitive! For her part, Sanchez denied the conflict of interest, but admitted the appearance of impropriety. So, the county gave Sanchez the chance to resign with a separation agreement.

The separation agreement contained a strict confidentiality requirement. But immediately after Sanchez resigned, the newspapers picked up on the story and quoted county officials. She sued the county and individual defendants for a variety of claims, including breach of contract. The county successfully "SLAPPED" most of the causes of action. The trial court eventually granted summary judgment on the rest of them. The court dismissed the breach of contract claim because the confidentiality agreement was contrary to the county's legal duty to disclose such facts to the public.

On appeal, the court of appeal reinstated the contract claim. The county's primary argument was that it was bound to disclose Sanchez's affair. After analyzing the various legal theories (including the Public Records Act and the First Amendment), the court said there was a triable issue of fact on the contract claim because the county did not have to disclose the affair to the papers. Had the settlement agreement been disclosed under the Public Records Act, the court might have come down the other way.

The court rejected the county's argument that Sanchez waived the confidentiality agreement by speaking with her parents and showing the agreement to Erwin. The court found it significant that Sanchez did so only after learning of the county's breach.

Regarding the issue of damages, she presented significant evidence it was harder to find a job after the disclosure of the affair to the newspapers. Therefore, the court rejected the county's contention that there were no damages available for the breach of confidentiality.

Typically, employers do not advertise their settlements with employees. So, this case may be an anomaly, particularly in the private sector. But to the extent employers needed motivation to maintain confidentiality, the prospect of a breach of contract claim should provide it. Employers should ensure they honor confidentiality provisions in separation agreements.

The case is Sanchez v. County of San Bernardino and the opinion is here.

Court of Appeal Upholds Release of Overtime Claims

Labor Code section 206.5 invalidates releases of wage claims. But when there is a bona fide dispute over whether wages are due, releases are valid. That's what the court of appeal held in Chindarah v. Pick Up Stix.

This was an overtime class action that went to mediation but did not settle. The employer did an "end run" and settled out about 200 employees with individual releases. Employees challenged the validity of the releases under Labor Code section 206.5. But the court of appeal, agreeing with the trial court, held:

The releases here settled a dispute over whether Stix had violated wage and hour laws in the past; they did not purport to exonerate it from future violations. Neither did the releases condition the payment of wages concededly due on their executions. The trial court correctly found the releases barred the Chindarah plaintiffs from proceeding with the lawsuit against Stix.

If this case is not taken up by the Supreme Court for review, it will clarify a longstanding unresolved issue in California law regarding when settlements of wage claims will be enforced.
Employers will be able to settle claims involving uncertain liability, such as for certain meal period claims, or misclassification issues when the factual issues are in dispute.

Read the opinion here.

Offers of Compromise

An offer of compromise under section 998 of the Code of Civil Procedure is a powerful tool to end litigation. If the other side does not accept the offer, it may result in financial penalties unless the other side's recovery is more than the section 998 offer. So, if you offer $10,000 under section 998 to settle a case, for example, the plaintiff has to do better than $10,000 at trial or the post-offer costs must be paid to the defendant.
But section 998 offers are tricky. The Court of Appeal recently held that a section 998 offer may not condition settlement on a "general release" of "all claims" (claims over and above what is included in the lawsuit that is the subject of the section 998 offer). The case is Chen v. Interinsurance Exchange and the opinion is here.

DGV