A release clause is a contract that, when agreed to, gives up the right of a person to file a lawsuit against another person or entity. It is a type of waiver where someone gives up their rights to sue over the contract.
These agreements are primarily designed to protect one of the parties to the contract from expensive litigation costs. Release clauses can be found in contracts and other documents related to disputes between two parties.
Release clauses are designed to help settle disputes quickly and cost-effectively. In some cases, a release clause will ask that a party agree to alternative dispute resolution such as arbitration, instead of filing a lawsuit in court for any disputes that may arise.
What Are Some Examples Of Release Clauses?
Releases are typically used by insurance companies when attempting to settle a claim. A common example is where you agree to accept a settlement check in an automobile accident, and in return, you agree to release the insurance company against any future claims as a result of the accident.
In the legal field, this type of exchange is called a quid pro quo – where you agree to receive something (a check) in exchange for something (not suing or bringing claims against the insurance company down the road).
In other words, even if you need future treatment for injuries sustained in an automobile accident, by accepting the settlement check from the insurance company, you release the insurance company for all liability. This includes any future medical treatment, medications, and therapy – even if it is directly related to your accident.
The possible exception to this type of release clause is when there is an unknown injury at the time of signing the release.
If a person can prove that they would not have signed the waiver knowing that they had a previously undiscovered injury, then under a mutual misunderstanding theory, a person may be able to argue that the release needs to be voided.
Waivers of this type from insurance companies usually include an agreement to also not sue their insured if the accident was caused by their policyholder.
Some release waivers are handed to people just before they engage in a dangerous activity like skydiving, horseback riding, or bungee cord jumping as other examples.
When asked to sign a release or waiver, some people find these clauses intimidating because when signed, they in effect are agreeing to surrender their right to sue if something goes wrong.
Release Clauses in Sports
Some athletes and professional sports players have release clauses written into their sports law contracts, and many times these clauses are used in negotiations to either negotiate down or pay less money for a player to play on another team.
The simplest way to think of a release clause in a sports setting is that it’s the exact opposite of a buyout fee.
For example, a buy-out fee is paid by the player or his representatives to the team in order for them to unilaterally break their contract with their current employer.
Some places refer to this as a “Loyalty Clause” because it gives players one final chance at leaving if they do not renew their contracts. This gives teams peace of mind knowing that they don’t have to deal with an unhappy player, but it sometimes can come back to haunt them when their players leave as free agents.
Release clauses work in the opposite manner. A team must accept an offer that meets or exceeds the release clause amount if they wish to transfer the player out of the team even if they don’t want to go.
Obviously, this makes some teams uneasy because it places the control of their players in someone else’s hand. However, there is also some reassurance for both sides knowing that negotiations can continue if some sort of agreement cannot be met between two teams.
These clauses are usually put into place at either end of a contract, after 2 years (when players tend to be unhappy with how things are going), or when talks about renewing contracts get too intense and there might be a need for release clauses to be used as a bargaining chip.
For example, if a star player were to have a release clause of $10 million, then their team would have to accept that release clause or they would have no other choice but to negotiate another deal with the player and team.
This is why release clauses tend to come into play at contract renewal time or after 2 years because players want reassurance that their contracts will be renewed if certain conditions are met, such as better teams interested in signing them, pay not meeting what they believe they should make, etc.
What Are The Requirements For A Valid Release Clause?
In the first place, any contract, including ones with release clauses, should not contain any fraud or misrepresentation. In other words, no party should lie or withhold material facts or information in the contract.
Moreover, both parties must agree on the specific terms of the contract either verbally or in writing. Since contracts can be easily contested, it’s best to write out your contract and then ask for signatures from all parties to the contract.
In general, a contract must be:
- Formed with an offer and acceptance. A contract is a set of mutual promises entered into by two or more parties. One party must make an offer, while the other accepts it, resulting in a meeting of the minds on all material points (price, quantity, quality).
- The parties are capable of contracting. All parties must be legally able to enter into contracts and agree to the terms and conditions of the contract in question. This includes having a sound mind. In addition, people under the age of 18 can enter into a contract, but since they are minors, the contract cannot be enforced.
- Legal purpose. Contracts for illegal purposes or activities are not considered valid and are thus void. Certain types of goods require a special license to sell them in some states (usually alcohol and firearms), while other goods can never legally be bought or sold (such as human organs).
- Sufficient consideration. There must be sufficient incentive for both parties to enter the agreement; if not, courts may declare a contract void or rescind it at their discretion.
- No one’s rights are violated. All contracts must be fair and beneficial to both parties. This includes taking into account any third-party interests that would be affected by the contract in question. A contract can be considered invalid if it involves performance for something illegal or against someone’s will.
Do I Need a Lawyer For Disputes Over A Release Clause?
If you are in a situation where you are questioning the legality of a release clause in a contract, it is best to seek legal counsel to help advocate for your rights and protect your interests.
A contract lawyer can help review the contract and determine if there are any specific actions that can be taken to resolve the dispute. If you have questions about how a release clause might work for your situation, counsel with an experienced lawyer today.
