Court of Appeal: Employee Repudiated Settlement Agreement

So, Thomas Ferguson was a bad policeman, having been picked up in a sting, for soliciting a prostitute.  Facing discharge, he made a deal with his employer, Cathedral City, and settled for a suspension. But part of the settlement depended on the resolution of criminal charges pending, i.e., if he was found guilty, he would resign.  Ferguson's lawyer wrote the city, complaining they were trying to influence the DA in Ferguson's criminal case. He went too far, though, and said the settlement agreement was void.  No settlement agreement, no suspension.  The city fired Ferguson, even though his NEW lawyer tried to take back the repudiation of the settlement.

No dice. Upholding the discharge, the Court of Appeal addressed repudiation of a contract and a settlement agreement in particular:

once Ferguson committed his anticipatory breach on June 23, 2007, the City could then elect its remedies, which in this instance meant the reinstatement of Ferguson‟s discharge. The City was no longer bound by the separation agreement and was excused from further performance: “The real operation of a declaration of intention not to be bound appears to give the promisee the right . . . to act upon the declaration and treat it as a final assertion by the promisor that he is no longer bound by the contract, and as a wrongful renunciation of the contractual relation into which he has entered. If [the promisee] elects to pursue the latter course, it becomes a breach of contract, excusing performanceon his part and giving him an immediate right to recover upon it as such. Upon such election the rights of the parties are to be regarded as then culminating, and the contractual relation ceases to exist, . . . [Emphasis added.]”

In English, the employer has two options: treat the agreement as canceled, relieving the employer of obligations under the settlement agreement (such as a neutral reference, COBRA, unpaid settlement sums), or sue for breach of the agreement to recover the settlement proceeds and any damages occasioned by the breach.

Of note, the court held also that Ferguson's attorney had the power to repudiate Ferguson's agreement.

Although a public sector case, the discussion re breach of settlement agreements is generally applicable.

The case is Ferguson v. City of Cathedral City and the opinion is here.