What is a Settlement Agreement?
A settlement agreement is a legally binding contract between a plaintiff and a defendant (or any two parties to a dispute) that resolves a legal dispute by settling it before trial. A settlement agreement can occur in a civil, criminal, judicial , or non-judicial case. There are advantages to a settlement agreement that may serve the interest of both parties. A settlement agreement terminates any further liability of the defendant and prevents the plaintiff from any further claims regarding the subject matter of the settlement. A settlement agreement also allows both parties to arrive at the solution of their choice rather than have the likely result be determined by a judge or jury. When a settlement agreement is entered, there is no further dispute between the parties on the stated issues.
Key Components of a Settlement Agreement
The majority of settlement agreements will include the following basic elements:
The Parties: The parties involved in the settlement agreement are identified, and they relinquish and/or release any claims they may have against one another.
The Settlement Amount: A specific amount of money is set forth for the parties to agree that the issue has been resolved, and generally, the payor will be required to pay the amount in full without any deductions.
Terms of Payment: As noted above, a variety of terms and conditions can apply to the payment. Such payments can include wages, salary, back pay, front pay, benefits, severance pay, commissions, loans, advances, or anything else the parties agree to.
Confidentiality Agreement: The standard tradition for most courts is to uphold the confidentiality of an agreement, as long as no evidence supports the contrary. However, both parties should sign and agree to the terms the settlement agreement contains regarding the exchange of information.
Standard Boilerplate Provisions: There are specific provisions that should appear in any agreement, such as a statement that the agreement applies to all parties involved, and that the parties understand the agreement fits into a reciprocal fit. Other provisions typically include:
- No Waiver: Parties agree that if they fail to enforce the terms of the agreement, it does not mean they do not retain the right to continue to enforce those rights later.
- Governing Law: There is no universally accepted law to refer to; however if it is a cross-state matter, the applicable state law will apply.
- Binding Arbitration: Any disputes arising under the agreement must be addressed by binding arbitration rather than litigation.
- Headings: All headings are used for convenience only, and do not limit the article in any form.
- Severability Clause: If any part of the agreement is held to be void and contrary to law, the rest of the agreement remains intact.
- Cost of Collection Clause: If a party is obligated to pay any costs and fees associated with collecting on any obligation or enforcing the provision of the agreement, that party is responsible for making sure those fees are reasonable and in good faith.
- Joint and Several Liability: Each party is responsible for taking responsibility for themselves and for the actions of other parties, so they are not going to leave one party responsible for the outcome.
It is important to review your agreement with an attorney experienced in employment litigation, to ensure that all of the issues have been properly addressed, and that additional issues are not overlooked.
Understanding a Release Form
A release form is a key element of a settlement agreement. It essentially protects the parties from future litigation on the same subject. The scope of the release contained in a settlement agreement will depend on the nature of the dispute but, generally speaking, its purpose is to give the parties peace from litigation moving forward. In some cases, when the parties are frequently involved in litigation together, the form of the release may be mutually beneficial such that both sides agree to a mutual or cross-release where they essentially release each other from claims against each other. This is not always the case though and the settlement agreement may involve a one-way release of claims. Most often a one-way release of this kind is when one party releases all of its claims but reserves specific rights, such as for injunctive relief against the counterpart. Further, a release form may be of general claims or it may specifically enumerate claims that are intended to be waived. Sometimes there may be negotiated exclusions of claims. In either case, it is important to ensure that any claims that are intended to be waived in a settlement agreement are as unequivocally and as clearly stated as possible.
The Legal Effect of Settlement Agreements and Release Forms
A settlement agreement comes with legally binding consequences. When you sign a settlement agreement, you are agreeing to be bound by its terms. In family law, this means that both spouses are contractually obligated to meet the provisions of their Separation or Settlement Agreement. If an individual does not uphold his or her obligations within the agreement, he or she could be found in contempt of court or in breach of contract.
For example, the husband may move out prior to the divorce being finalized and may be obligated under the terms of the agreement to pay the mortgage on the vacant marital home. While he may legally be entitled to live elsewhere, if he fails to pay the mortgage, he could be found in contempt. Likewise, in accordance with the agreed-upon child support obligation, he may be expected to have the children primarily reside with him to receive child support, rather than living with their mother to whom they will pay child support.
In the divorce case, these issues may be addressed through alleged contempt of court, special relief, breach of contract or various other remedies as permitted under statute or court rule. But in the event that a settlement agreement was submitted to the court and subsequently incorporated into a court order or decree, the agreement as part of the settlement is no longer non-binding. If entered into a subsequent court order or judgment, enforcement actions relating to the agreement are initiated as a breach of contract claim.
Similar principles apply to issues of release forms and mutual releases from liability. If both parties to a separation agreement release each other from liability for future claims, it is usually upheld and either may be barred from bringing up such claims at a later time (absent a very compelling reason). This, of course, cannot bar future claims for failure to abide by the provisions of the agreement or other intervening events affecting the substance of the agreement or the rights of the parties, such as the arrival of a pre-nuptial agreement with more specific terms or an income or property increased by inheritance, investment or promotion at work.
How to Draft a Settlement Agreement: Things to Consider
When handling a case in which a settlement agreement may be prepared, whether for a disability discrimination case, wrongful termination case or simply a case based on some other kind of discrimination, it is important to set out the right kinds of considerations for a settlement agreement so that all parties are clear about their respective rights and obligations after the agreement is signed.
Most importantly, the agreement must comply with the law. There are many different applications for settlement agreements which may call for additional or different terms, but there are some generally accepted elements of settlement agreements that usually must be present.
These include: When dealing with an agreement that contains a waiver of rights, for example an agreement that would be used to resolve gender discrimination allegations, it is extremely important to do it correctly to ensure that the waiver meets all the requirements of the applicable statutes. This article notes: "[I]n order for ADEA waivers to be knowing and voluntary, they must satisfy the requirements of the Older Workers Benefits Protection Act ("OWBPA"), which supplements the ADEA. See 29 U.S.C. § 626(f)(1). The OWBPA requires that, for a waiver to be knowing and voluntary, the individual seeking to waive his or her rights must be offered 21 days to consider the terms of the waiver before signing, id . § 626(f)(1)(A), and . . . seven days must be permitted to revoke the release, with the waiver not becoming effective until after the seven-day period expires, id. § 626(f)(1)(D). " "OWBPA sets forth separate rules for waiver of ADEA claims in exchange for consideration other than severance pay, provisions of a retirement plan, or an employer-paid health plan. To be valid, such a waiver may be called "knowing and voluntary" only where the waiver is) supported by consideration in addition to the employer’s providing any money or benefits previously due to the individual from the employer, (ii) the individual, usually by signing and using the certificate of the employee’s voluntary and knowing acceptance of the terms of the waiver agreement, acknowledges that he or she was given a period of at least 21 days, (iii) the employee acknowledges in that same certificate that he or she consulted with an attorney of the employee’s own choice regarding the terms of the waiver; (iv) the waiver is effective only if, within seven days after the individual signs the agreement, the individual does not revoke a signature to the agreement; and (v) the agreement itself specifically refers to the ADEA waiver. See 29 U.S.C. § 626(f)(1)(A)-(E).
Common Pitfalls
One common mistake made in settlement agreements is a failure to identify with specificity each claim that is being released and any considerations that have been made. A proper settlement agreement must generally acknowledge the consideration given for every enumerated claim that is being released to be considered binding by a court. Even if the release does not apply to the claims being released, it will likely be void under generally applicable contract law principles. Oftentimes, an agreement will state that a party releases every claim that it has against the other party, and such language can be problematic. If the form of release does not expressly include a general discharge that is not limited by the enumeration of specific claims, there is certainly an argument that the general release language does not extend to the unidentified claims. Moreover, many settlement agreements include language that the parties are satisfying all known direct and consequential damages, but the agreement can be misread as only applying to damages in litigation when the agreement is drafted broadly enough to cover all foreseeable damages. As a result, a party may be left without a remedy for undefined consequential damages.
When it’s Necessary to Get Legal Help
When you are presented with a settlement agreement or a release form, it is important to ensure that you understand in full all of the provisions of that document and how they may affect your legal rights before you sign on the dotted line. Many times an employee will have a deadline by which they need to sign a release or a settlement agreement, which can create some pressure for the employee to get that document reviewed and signed quickly. Employees need to ensure that they seek out the proper legal advice before they sign such a document, even if that means a deadline may be missed. A couple of key issues that arise frequently which can be problematic if you do not seek out legal assistance before signing a release include:
1. Depending upon the age of the individual who is being presented with a release, there are additional requirements imposed which must be satisfied before the release can be effective. For individuals who are over the age of 40, the Age Discrimination in Employment Act (ADEA) and some state laws provide certain protections for those employees. For example, an employee who is 40 or older must be provided with at least 21 days after receiving a proposed release in which to review the proposed draft and must be provided with 7 days after signing the release within which to revoke that release. These timelines can be extremely important, for example, in the case of a layoff where an employer is providing severance to employees in return for a release of claims, the employer may wish to avoid having to continue to pay severance until the maximum window for an employee to revoke that release has run. Failing to provide the appropriate amount of time for an employee to review or potentially revoke a release may mean the difference between paying no severance to an employee and paying severance for a much longer period of time than was originally anticipated.
2. Another common issue which arises with settlement agreements and releases is confidentiality. For example, if an employee signs a release agreement that includes a non-disclosure provision, the employee may be unaware of the potential ramifications of failing to comply with that provision. Sometimes an employer may take the position that a specific comment made by an employee about a workplace dispute, for example, breaches the confidentiality provision of the release agreement. If this happens, an employer may take the position that they are entitled to no longer honor their part of the bargain.
Settlement Agreements and Release Forms FAQs
Q: Does a settlement agreement need to cite a specific law under which a claim purportedly arises?
A: Generally, no statute or particular area of law need be cited in order for a claim to be properly released in a settlement agreement. In obvious cases where the basis for the release is clear, the absence of citation is not typically viewed as problematic and Courts have consistently upheld broad releases in this context. On the other hand, if there is some doubt as to what is being released, a Court may look to an applicable law in determining intent — i.e., into which basket of claims the release falls. Barring doubt as to intent, however , citations are not typically required.
Q: Must a settlement agreement specifically reference an employee’s right to file an administrative charge?
A: No. A settlement agreement should generally also include language which acknowledges the individual’s right to file a claim with an administrative agency and/or to participate in that agency’s investigation of any such claim. However, as a practical matter, it is highly unlikely that a claim filed with a state or federal administrative agency would succeed where the individual has already entered into a release agreement with his/her employer and has agreed to arbitrate any disputes. While the EEOC has been known to bring lawsuits on behalf of employees and former employees on the basis of a release agreement, the EEOC cannot interfere with a private agreement absent evidence of fraud.