Merchant of Tennis: Rescinding California Employee Settlement Releases

Read the source decision.

Employers sometimes seek individual settlements with current or former workers while a putative wage-and-hour class action is pending. The Merchant of Tennis, Inc. v. Superior Court addresses what happens when workers claim those releases were obtained through misleading communications and elect to rescind them.

Individual settlements during a class case

A former employee filed a proposed class action alleging California wage-and-hour violations. The employer later reached individual settlements with hundreds of current and former employees, paying cash in exchange for releases.

The trial court found the agreements potentially voidable based on alleged fraud and duress and approved a curative notice allowing recipients to revoke. It did not require the notice to warn that an employee might ultimately have to restore the settlement payment if the employer prevailed.

What the appellate court required

The Court of Appeal concluded that the notice needed to explain the possible restoration consequence. California Civil Code sections 1689, 1691, and 1693 permit rescission in appropriate circumstances, but rescission ordinarily seeks to return the parties to their precontract positions.

The court did not require immediate repayment as the price of revocation. It recognized that restoration could be delayed until judgment and that the trial court retained equitable discretion. The court directed reconsideration of the notice so workers could make an informed choice.

Rescission and restoration are linked

Rescinding a release and keeping all consideration without adjustment can create an inequitable result. Conversely, forcing immediate repayment could make rescission practically unavailable to workers who already used modest settlement funds. The opinion’s timing solution attempted to preserve both principles.

The decision does not establish that every direct settlement is invalid. Enforceability depends on the communication, disclosure, consideration, release language, alleged coercion or misrepresentation, and surrounding litigation. Nor did the court finally adjudicate the underlying wage claims.

Practical lessons for California workers

• Keep every settlement offer, cover letter, text message, and payment record.
• Identify the claims and time period the release covers.
• Check whether a pending class or representative action is disclosed.
• Understand whether revocation may create a later repayment or offset issue.
• Do not sign solely because an offer is described as routine or time-sensitive.

Settlement communications with putative class members receive close scrutiny. Both the wording of the release and the process used to obtain it can matter.