A recent settlement agreement Simas & Associates, Ltd. on behalf of two licensed professionals inspired this blog. The parties – call them Doctor and CPA — had a business dispute and were settling the case. The settlement agreement was presented for review and contained the standard provisions, including a release of all claims referencing Section 1542 of the California Civil Code.
The problem is that the release of all claims specifically attempted to release claims against the licensing board.
The Right to Complain to the Licensing Board
In this business dispute, CPA provided services for Doctor’s business. Unfortunately, CPA was not licensed in California during the time CPA provided services for Doctor – thus creating a huge potential defense to having to pay for such services. As a result, CPA sought a wide release of all claims, which included releasing the ability of Doctor to complain to CPA’s licensing board.
Unfortunately, including such a provision is illegal under California law. Not only would it void the entire settlement agreement; it would likely be independent grounds for license discipline. And not only for the CPA!
Section 143.5
Business and Professions Code Section 143.5(a) merits consideration when anyone – attorney included – is trying to settle a civil dispute involving licensed professionals. Section 143.5(a) applies to any licensee regulated by a program within the California Department of Consumer Affairs. Specifically, regardless of whether the settlement agreement is made before or after the commencement of a civil action, the section renders void a provision that:
. . . prohibits the other party in that dispute from contacting, filing a complaint with, or cooperating with the department, board, bureau, or program . . .
Further, the section prohibits any settlement clause that “requires the other party to withdraw a complaint . . .”
Section 143.5 states clearly, “a provision of that nature is void as against public policy” and confirms, “any licensee who includes or permits to be included a provision of that nature in a settlement agreement is subject to disciplinary action by the board, bureau, or program.” In other words, both Doctor and CPA who permit such a provision to be in a settlement agreement may have committed an act of unprofessional conduct. Thus, a licensee can neither present nor agree to such a provision without risk licensing action.
Attorneys for licensees and licensees of the Department of Consumer Affairs beware when drafting settlement agreements. Section 143.5 is very specific, can subject your client to license discipline, and is often overlooked.