California
Appeals

Aug 07 2008

S147190 [PDF] [DOC]

Edwards v. Arthur Andersen 8/7/08 SC

Contract Interpretation

In contrast to Bardin, the TONC at issue here expressly excepted two types of claims from release.  The first were claims arising from the TONC itself.  The second was for “any accrued and unpaid salary or other employee benefit or compensation owing to Employee as the date hereof.”  The Court of Appeal believed that indemnity rights did not fall within either of these exceptions, and even if the right to indemnification did qualify as compensation, the release remained invalid because its exception applied only to compensation owed as of the date of the agreement, a clause that would have improperly waived Edwards’s right to future indemnity claims under Labor Code section 2802.  The court also noted that because the release expressly excepted two types of claims, but did not expressly exempt indemnification rights, the release intended to waive those rights.  As we explain, under Labor Code section 2802, a contract provision releasing “any and all” claims generally does not encompass nonwaivable statutory protections, and in particular does not implicitly apply to an employee’s right to indemnification from the employer.

“Where the language of a contract is clear and not absurd, it will be followed.  [Citations.]  But if the meaning is uncertain, the general rules of interpretation are to be applied.”  (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 741; Civ. Code, §§ 1637, 1638; see also Sierra Vista Regional Medical Center v. Bontá (2003) 107 Cal.App.4th 237, 245-246.)  Here the meaning is in dispute and uncertain; we must therefore decide what the phrase “any and all” means.  “If a contract is capable of two constructions courts are bound to give such an interpretation as will make it lawful, operative, definite, reasonable and capable of being carried into effect . . . .”  (Rodriguez v. Barnett (1959) 52 Cal.2d 154, 160; see also Jones v. Humanscale Corp. (2005) 130 Cal.App.4th 401, 411; Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268, 278; Civ. Code, §§ 3541 [“[a]n interpretation which gives effect is preferred to one which makes void”], 1643 [“[a] contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect”].) 

The TONC did not expressly reference indemnity rights, and we should not read it as encompassing a waiver of Edwards’s indemnity rights.  Giving the TONC such a reading is consistent with the tenets of contractual interpretation because it makes the contract lawful, valid and capable of being carried into effect.  In addition, our conclusion makes it unnecessary to insert additional language or terms into the contract, which is consistent with Code of Civil Procedure section 1858 and its mandate that when courts construe an instrument, a judge is “not to insert what has been omitted, or to omit what has been inserted . . . .”  “[I]t is one of the cardinal rules of interpreting an instrument to give it such construction as will make it effective rather than void.”  (Toland v. Toland (1898) 123 Cal. 140, 143.)  We apply this rule in holding that a contract provision releasing “any and all” claims, such as that used in the TONC in the present case, does not encompass nonwaivable statutory protections, such as the employee indemnity protection of section Labor Code 2802.  In so holding, we interpret the TONC such that it does not violate Labor Code section 2804.  As a consequence, the TONC is neither unlawful nor null and void.

Even if we ignored the above principles of contract interpretation, we would still find that releasing “any and all” claims does not implicate Edwards’s nonwaivable right to indemnity.  Andersen contends it did not except indemnity rights from the release because it was aware that under Labor Code section 2804, such rights are statutorily nonwaivable.  Andersen asserts essentially that such an exception was legally unnecessary.  California case law arguably supports Andersen’s contention.  “ ‘ “[A]ll applicable laws in existence when an agreement is made, which laws the parties are presumed to know and to have had in mind, necessarily enter into the contract and form a part of it, without any stipulation to that effect, as if they were expressly referred to and incorporated.”  [Citation.]’ ” (Torrance v. Workers’ Comp. Appeals Bd. (1982) 32 Cal.3d 371, 378, quoting Alpha Beta Food Markets v. Retail Clerks Union (1955) 45 Cal.2d 764, 771.)  This means that when we interpret the TONC, we could presume that Andersen knew Edwards’s indemnity rights were statutorily nonwaivable.  It also means we may treat the TONC as if it expressly includes the substance of Labor Code section 2804:  that no employee’s right to indemnification, to which he or she is entitled under the law, can be waived.  (Liberio v. Vidal, supra, 240 Cal.App.2d at p. 276 & fn. 1.)  Therefore, the waiver of “any and all” claims would not encompass the right to indemnification, because we treat the TONC as expressly incorporating the law that the employee cannot waive that right.[7]

Edwards suggests contract drafters could easily fix the overbroad release problem by including the clause “except as otherwise prohibited by law” after “any and all.”  We fail to see what difference this would make.  The phrase “except as otherwise prohibited by law” is vague and essentially informs the employee of nothing.  In addition, it appears most practitioners already operate with the understanding that the release does not encompass items “otherwise prohibited by law.”  If they do, they are null and void under the Labor Code.  Therefore, we believe that voiding all existing releases which include the language “any and all” is inappropriate.  

We conclude that a contract provision releasing “any and all” claims does not encompass nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802 and, accordingly, is not void under Labor Code section 2804.