An exculpatory clause in an employment contract is usually enforceable

By John F. Kamin

Your claim may have been released before the event occurred.  Exculpatory clauses within contracts are provisions which attempt to eliminate liability for future negligence.  Such contracts are not favored, but are valid and enforceable in Illinois as long as they are not contrary to public policy and there is not a unique relationship between the parties, such as a common carrier/passenger or employer/employee.  To be enforced, the clause must have clear, explicit  and unequivocal language showing the intent of the parties.  Exculpatory clauses violate public policy if it is attempted to be used to release a claim involving fraud, willful and wanton conduct or if there is legislation specifically prohibiting such clauses in certain circumstances.

Exculpatory provisions have been found to be enforceable and barred claims in a variety of circumstances.  For example, a lessee of a horse who had become “spooked” was not allowed to pursue a claim against the horse owner because he had signed a contract including an exculpatory clause.  Similarly, the claim of a tour participant using a four-wheeler against the tour operator and guide was barred by a release which had been executed prior to an accident.  Again, a health club membership agreement relieved the club from liability to a patron for injury caused by an alleged defective bench press.  Exculpatory clauses may also limit damages.  For example, a claim against a home inspector was limited to the inspector’s charges for the home inspection.  In this circumstance, the court had noted that the Home Inspector License Act  did not have any reference to an inspector’s liability, and could not be used as a statement of public policy which would indicate that limitation of liability would be unenforceable.

However, the court has found that enforcement of certain exculpatory contracts was prohibited by legislation.  For example, a dram shop owner may not exculpate itself by requiring customers to sign releases of liability before being served alcohol.  Further, an exculpatory clause in a real estate contract would not protect real estate brokers for liability in negligent misrepresentation where the application would violate the realtors’ specific duties which were established by the Real Estate Brokers and Salesmen License Act.  To enforce the clause in such circumstance would contravene public policy.  Again, an individual who provides elevator service as a common carrier owed the highest degree of care and the common carrier’s liability could not be limited by an exculpatory clause. 

A unique circumstance involves claims that may be pursued by minors.  Exculpatory clauses are based upon contract law.  Minors do not have the capacity to execute contracts.  However, what happens if the parent signs the release for the minor?  The court has held that a waiver of liability signed by a parent before a minor’s cause of action accrues is not enforceable.  See Meyer v. Naperville Manner, Inc., 262 Ill.App.3d 141 (2nd Dist. 1994).  As a general rule, a parent cannot release its minor’s claims unless there is statutory or judicial authorization to do so.  Notably, medical expenses and other damages which may be incurred as a result of a minor’s injury may be pursued by a parent.  To that extent, an exculpatory provision executed by a parent may be used to deny a parent’s claim for medical bills pursuant to the Family Medical Expense Act.

Exculpatory clauses are found in a variety of agreements and contracts.  As a best practice, claim handlers and defense counsel should investigate whether the claim at issue may have already been released by such a provision.

Originally published in the Spring 2013 edition of Quinn Quarterly.

An exculpatory clause is a term of a contract that grants one party relief from liability if there are any damages caused during a performance of a contract. This applies in a variety of situations or events. 3 min read

1. What Does It Mean to Have an Exculpatory Clause in a Contract?
2.  Exculpatory Clauses Enforceable in Court?
3. What Makes an Exculpatory Clause Unenforceable?

An exculpatory clause is a term of a contract that grants one party relief from liability if there are any damages caused during a performance of a contract. This applies in a variety of situations or events. 

What Does It Mean to Have an Exculpatory Clause in a Contract?

In general, the party that includes the exculpatory clause as part of the contract is the party that seeks to have relief from the potential for liability. One example of an exculpatory clause in a contract is a ticket for a show that states on its face that the venue is not liable for any personal injuries caused by their employees throughout the course of the show.

In most states, there are laws that make exculpatory clauses in rental agreements unenforceable in a court of law. While there are many other instances where exculpatory clauses are upheld, it is always an option for the harmed party to challenge the clause if the party feels it is unfair. It is possible for the court to overturn the clause.

 Exculpatory Clauses Enforceable in Court?

Generally speaking, yes, exculpatory clauses are enforceable in court as long as they are reasonable. Courts will find that these clauses are not valid if the court determines that the exculpatory clause is unconscionable. 

The main reason that a court may rule that an exculpatory clause is unenforceable is if the court determines that the clause was unreasonable given the specific circumstances and facts of the case. The clause is found unreasonable if both parties to the contract lack equal bargaining power. Courts have also held that these clauses are unreasonable where the clause completely excludes any liability on one party for negligence. In addition, courts do not allow a party to excuse all liability for harm caused in a reckless or intentional manner.

The courts typically consider several different factors when they are choosing whether or not an exculpatory clause in a contract is actually enforceable. The following factors tend to increase the odds that a court will find an exculpatory clause enforceable:

• The clause is obvious to the reader, with terms in capital letters, different colors, or bolded language
• The wording of the clause is simple and easy to understand, in such a way that the average person would understand exactly what the clause is binding them to
• The wording of the clause should use specific terms, including terms involving liability, such as the use of the word “negligence.”

What Makes an Exculpatory Clause Unenforceable?

There are five main ways in which an exculpatory clause is determined unenforceable. These include:

Ambiguity - Since the courts require an exculpatory clause to state clearly the specific rights which a person agreeing to the clause has waived, any language that is ambiguous will not suffice in court to allow the clause to stand.

Deliberate acts – Courts generally find that a just a simple mistake is insufficient in order to completely invalidate an exculpatory clause; however, deliberate actions and gross negligence may suffice to uphold the clause.

Fraud – With a clause deemed unenforceable due to fraud, the court must find that the party falsified a material fact also intended to deceive, along with the other party, as a reasonable person, having relied upon the falsification and that this reliance caused the harmed party to suffer damages.

Contrary to public interest – The courts typically applied the public policy test when weighing the factors to determine whether an exculpatory clause before them is actually enforceable. This test weighs the bargaining power between both parties and also consider whether a company was providing necessary public services (such as a hospital) to the extent that the clause enforcement occurs for the good of public interest.

Total absolution of liability—Some courts have held that where there is a broad clause that states very generally that a company cannot be found liable for any damages of any kind, that such a clause cannot be enforced since it is without any limitation. However, it is important to note that both state courts and federal courts vary in their rulings interpreting this issue.

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