Release of Claims in Contracts: What You Give Up
What Is a Release of Claims?
A release of claims is a contractual provision where one or both parties agree to give up (release) their right to bring legal claims against the other party. Once signed, the releasing party generally cannot sue for the released claims, even if they later discover additional harm or damages.
Releases are used to resolve disputes, finalize settlements, and close transactions cleanly.
Where Releases Are Common
- Employment separation agreements — Departing employees release claims against the employer in exchange for severance pay
- Settlement agreements — Parties to a dispute release claims in exchange for payment or other consideration
- M&A closing documents — Sellers release claims related to the business being sold
- Insurance settlements — Claimants release future claims related to an incident
- Contractor final payment — Contractors release all claims upon receiving final payment
What to Review Before Signing
- Scope — What specific claims are being released? A broad release covers everything, while a narrow release covers only specified matters
- Known vs. unknown claims — Some releases cover claims you do not yet know about; California Civil Code Section 1542 specifically addresses waiver of unknown claims and requires explicit reference
- Time period — Does the release cover past events only, or future events as well?
- Consideration — What are you receiving in exchange for the release? A release without adequate consideration may not be enforceable
- Carve-outs — Certain claims (workers' compensation, EEOC charges, unemployment benefits) often cannot be released by law
Special Rules for Employment Releases
The Older Workers Benefit Protection Act (OWBPA) requires that releases of age discrimination claims (ADEA) by employees 40 and older must:
- Be written in plain language
- Specifically reference ADEA rights
- Provide at least 21 days to consider (45 days for group layoffs)
- Allow 7 days to revoke after signing
- Be supported by consideration beyond what the employee is already owed
When to Consult a Lawyer
Before signing any release of claims, consider having an attorney review the scope of what you are giving up, especially in employment separation or significant settlement contexts.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.