California Court of Appeal Provides Clarification of Labor Code Section 206.5's Restrictions on Releases of Wage Claims

by Sheppard Mullin Richter & Hampton LLP

[authors: Gregg Fisch and Rachel Miller]

In the recent California Court of Appeal decision of Pulli v. Pony International, LLC, the court clarified that Labor Code section 206.5 prohibits an employer from requiring an employee to execute a release of a claim for wages only and does not prohibit the employer from requesting that the employee waive his right to a jury trial by agreeing to arbitrate his employment-related claims. Although the court refused to rule on whether the arbitration agreement itself was enforceable (even though it expressly held that the provision was not automatically unenforceable), the decision appears to be at least a small victory for employers and plain language statutory constructionists.

In Pulli, an individual sued his former employer, Pony International, for alleged fraudulent inducement to enter into an employment agreement and wrongful termination. Pulli claimed that, in order to avoid forfeiting earned wages and other types of compensation owed to him as Pony supposedly threatened, he was forced to enter into the agreement containing an arbitration requirement under which he gave up his right to a jury trial. Pony filed a motion to compel arbitration based on the arbitration provision in Pulli’s employment agreement. Agreeing with Pulli that the arbitration agreement was unenforceable because the employment agreement as a whole was unenforceable under Section 206.5 since it purportedly improperly required a release of claims for wages due, the trial court denied Pony’s motion to compel.

On review, the Court of Appeal found that the trial court erred in determining that the employment agreement, and therefore the arbitration provision within it, was unenforceable. First, the court concluded that Pony had waived its right to have the arbitrator determine the Section 206.5 issue because, in its reply brief in support of its motion to compel arbitration, Pony separately addressed the merits of Pulli’s contention that the arbitration provision was void pursuant to Section 206.5. Then, the Court of Appeal addressed the merits and held that Section 206.5 did not render the arbitration provision in the employment agreement unenforceable. More specifically, the court found that Section 206.5 does not apply towards an employee’s waiver of his right to a jury trial by entering into an agreement that contains an arbitration provision. In so finding, the court noted that nothing in the plain language of Section 206.5 could lead to a conclusion that the Labor Code provision should apply broadly, especially considering that the legislative history made clear that the statute was enacted to remedy the building industry’s former “widespread” practice to condition wage payments on the execution of a general release and then make payment by “bad checks,” thereby preventing the employees from seeking recourse for the non-payment of wages. Moreover, the Court of Appeal recognized that the Legislature was aware of its ability to broaden the scope of the statute, since it revised the statute in 2008 to expand the meaning of the term “release” to include an employee’s execution of a document that stated he or she was owed no further wages. Accordingly, the court acknowledged the significance of this statutory amendment to indicate that before 2008 the statute only covered actual releases of the right to sue and, therefore, “release” must be defined very narrowly to include only actual releases of claims. Thus, Section 206.5 is to apply only to the actual release of wage claims, as they are particularly addressed by the statute.

In its ruling, the court found unpersuasive Pulli’s argument that, because the execution of the employment agreement impermissibly violated Section 206.5, the entire agreement (including the arbitration provision) was invalid. In response to this argument, the court explicitly stated that the “existence of an invalid release of a wage claim pursuant to Section 206.5 in an agreement does not provide a defense to the enforcement of an arbitration provision contained in the same agreement.” In other words, applying the doctrine of severability, the court held that, even if the employment agreement contained an invalid (and unenforceable) release of wage claims under Section 206.5 (an issue that the court refused to address at this time), only the release portion of the agreement would be invalidated. Consequently, neither the entire agreement nor the arbitration provision would be automatically invalidated.

The court, however, limited its holding, noting that it was looking only at the enforceability of such an arbitration provision under Section 206.5 and was not expressing an opinion on whether the arbitration provision was unenforceable under other principles of law. Nonetheless, this holding appears to represent a positive result for employers towards the protection of plain language statutory construction of Labor Code section 206.5. Thus, it seems clear that the plain language of Section 206.5 should be considered and applies only to actual releases of wage claims.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

Written by:

Sheppard Mullin Richter & Hampton LLP

Sheppard Mullin Richter & Hampton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.