What is a Settlement Agreement?
A Settlement Agreement and Release is a written contract like any other, but it has a very specialized purpose: to end a legal dispute. Usually, the term "settlement agreement" refers to a deal struck between the parties in a civil lawsuit. In the right situation, a settlement can save both sides the cost of a trial and the uncertainty of having their case decided by a judge or jury. Even relatively simple agreements can involve complicated terms, from the precise language to the definition of key terms to the order of the paragraphs.
So why do I need a Settlement Agreement and Release? Shouldn’t I just deal with this when the court tells me how to pay? To paraphrase the Eagles , "You can never leave." Once you have a lawsuit, it will never go away on its own. Keep in mind that a settlement agreement has the power to turn allegations into obligations, whether your legal case is pending, or even if the judge already granted a default judgment against you. Some actions that you imagine are only threats—like attempting to collect an unpaid debt—can actually be grounds for a lawsuit. If someone sues you or threatens to sue you, or if a government agency called the police because of a problem with your business, even if they never follow up, you have a legal dispute. The best way to end that dispute is to work toward a settlement agreement after understanding its terms.
Major Components of a Settlement Agreement
The parties. This seems rather obvious. However, it is an important point in that if the wrong party is using the sample; that party will want to give all information required. If a corporation or business entity is one of the parties, the settlement agreement will want to include the state where the entity is incorporated and carries on business. Consideration. In most cases, there is something paid to one party by the other (or two separate payments, owing to negotiation), but in some cases, the parties bind themselves to do or not do certain things. In an employment case, for example, the employer may make a confidentiality and/or severance payment to the employee and the employee is asked to waive all claims against the employer and its employees and officers, etc. On occasion, the employer will request a unilateral waiver in exchange for continued employment, even if the employee’s tenure is terminated quickly. Obligations / Waiver of Claims. Again, this type of provision is pretty standard. Sometimes one party (employee) will waive a claim and seek a waiver from the other side. Sometimes each side will waive its claims against the other. It is important that the language be included because in the absence of express waiver language, many states imply a release of the other party.
Common Provisions in Settlement Agreements
One common clause found in many settlement agreements is the confidentiality provision. Oftentimes, the confidentiality clause in a settlement agreement requires both the employer and the employee to keep all facts and circumstances related to the termination, the settlement or anything that is related to the settlement process confidential. Confidentiality clauses are meant to make sure that both parties to the settlement agreement cannot re-publicize any events that occur. It’s important to be aware of how a confidentiality agreement works when signing a settlement agreement. The non-disparagement clause is another common clause found in many settlement agreements. Employment Settlement Agreements include mutual non-disparagement clauses that will preclude both the employer and the employee from disparaging one another following the date of the agreement. Indemnity provisions are commonly found in many Settlement Agreements as well. These provisions typically require that one party indemnify the other party in the event any claims are made against them. Indemnification provisions in Settlement Agreements often operate as a sort of "hold harmless" clause requiring one party to agree to be liable and/or agree to compensate the other party in the event liabilities arise.
Non-Competition Agreements may also be found in severance agreements. Sometimes, the attorney for the employer will include a non-compete agreement in the severance agreement. The employer should add a commitment to pay the wages. Nondisparagement provisions and Confidentiality provisions are really very common in these types of agreements.
The Role of a Release in a Settlement Agreement
The release component of a settlement agreement is essential to the protection of the parties. A release is a relinquishment of a legal right or claim for consideration. In the context of a settlement agreement, the party relying on a release is purchasing freedom from future claims based on the current dispute. Depending on the context of the underlying dispute, releases may be used to bar or settle future claims pursuant to a release of all claims, general mutual releases, or more particularized general releases.
Simply put, a general release will release all claims that may exist among the parties to the dispute. However, a general mutual release of all claims will only release claims that up to the general release date. This is important when the parties are uncertain whether future claims or disputes will arise, as the party relying on a general all claims release would likely argue that such claims fall under the general release.
The requirements and specificity of a release clause in a settlement agreement are subject to negotiation. Every contract is the product of compromise, and this will be no different. It is important for parties to be clear about their intentions regarding the release of claims.
Sample Settlement Agreement Forms
Sample settlement agreement and release templates are general forms of such agreements that serve as a guide for those drafting their own settlement agreement. They’re helpful in that you can access the text for several settlement agreements and release, fill in the particulars (the names of the parties, the release to be given, etc.), and use the document as your own settlement agreement.
This is an important point here. Even if you have an existing settlement agreement and release in place that you or others are using or have used, consider updating it by matching up the language with the Sample Settlement Agreement and Release template.
Why? Well, if you read the disclaimer you can see that you cannot rely on the content here under any circumstance in place of advice from an attorney. We work within the law but we aren’t licensed to practice throughout every state so we are unable to your particular needs. An agreement or release is a legal document. It may be incorporated into other documents in a manner that requires additional legal work, agreement by the opposing side, or signing by a third party to make it enforceable. You should consult an attorney that’s licensed to practice in your state to get legal advice and guidance on how to draft your settlement agreement and review it with them to ensure that you have all of your bases covered.
As noted here, depending on what type of settlement agreement you’re drafting, there may be numerous considerations to take in to account. Depending on the context of your settlement agreement and the parties involved, several other legal considerations arise.
A settlement agreement is a legal document and is worth the time, money and effort it takes to ensure that your agreement is properly drafted, reviewed and executed.
The Sample Settlement Agreement and Release template offers you a basic guide / suggestion for drafting your settlement agreement and release. But is suggest that you do so in consult with an attorney licensed in your state.
Modifying Settlement Agreement Templates
Whether a sample settlement agreement form can require the company to repay a portion of its severance payments in the event it rehires the terminated employee may depend on the applicable jurisdiction and on how the particular sample agreement is drafted. In some jurisdictions, a specific repayment right is not enforceable unless it is clearly spelled out in the agreement.
The parties should also be attentive to the timing of any repayment to ensure the timing is legally compliant. Some jurisdictions (such as many in California) require overpayments to be returned within 30 days. Others require no specified period of time for compliance or have differing requirements depending on how the exact nature of the overpayment is characterized .
In general, there are a few factors to consider when customizing a sample settlement agreement to ensure it meets the specific needs of the case:
• What amount is owed by the company (smaller amounts may not justify add-ons like an attorney-fee indemnity provision);
• What are the specific legal claims at issue (ensure that all legal claims that reasonably arise from the specific facts are included;
• What other types of payments are involved (some forms require additional payments, such as wage supplements, to fully reflect the proper factual posture);
• What are the remaining obligations to the employee in addition to payments (continued medical coverage may need to be added in more detail);
• Are there any obligations that are impossible to fulfill (ensure that all parties fully understand the purpose of any particular provision);
• Are any potential defenses to the settlement (ensure that the settlement agreement has been reviewed to assess any potential legal defenses to enforcement);
• What non-compete agreements are required (some forms may erroneously omit needed provisions);
• How can the agreement address sensitive ongoing relationship issues (modification and extension of confidentiality provisions may be needed to address these issues);
• Are there any additional provisions that may be needed by either party (additional provisions that may be added to most forms for checking boxes include: limiting the scope of release, incorporating a merger clause, clarifying the waiver/novelty of benefits, addressing confidentiality, and addressing conflict of law).
Legal Aspects and Considerations
The drafting of a settlement agreement and release is not just the formalization of an informal deal struck in the back office of a local courthouse or at a settlement conference with a Buddhist monk. The agreement is a final disposition of litigation, and as such, must be enforced like any other contract, subject to the laws of contract between states, as well as the procedural rules in federal or state court that require approval of any settlement agreement involving minors or incompetent persons. Moreover, your client’s name must be removed from the case caption, and you may have to ask a judge to deem the case dismissed, with or without prejudice, either with or without costs, and either with or without the necessity of completing a release.
The settlement agreement may need to comply with the Fair Labor Standards Act (FLSA) to be enforceable, and best practice would require you to have the agreement signed by the client (and be sure no white-out is used on the document), the opposing counsel, and perhaps even a notary public (if state law requires).
Here are a few best practices to ensure that your settlement agreement and release is enforceable:
Of course, best practice is not always possible, but there is a very good reason to include a clause for the return of the settlement proceeds to the employer should the employee attempt to enforce the release in bad faith.
Sometimes an unscrupulous employee tries to invalidate a release that has been signed. This can happen when an employee is unhappy about a settlement, which does happen from time to time. Those cases are often ones that should not have been litigated, but the employee wanted to file suit just to get noticed and did so knowing that it was frivolous. The company knows well that the employee will never get through summary judgment, so when the employee does, the company offers what it believes is a fair yet simple deal. The employee tries to take it, but the company requires an enforceable release. The employee refuses, gets counsel, and sues again — this time for breaching the settlement agreement — even though the company was complying with it by paying the settlement amount and the employee refused to sign it.
This practice is usually not recommended because it can cause signing problems. But, I have seen it done, and the presiding judge may like the provision as a way of "policing" future behavior by the parties. However, this provision could open you up for other problems, especially if the case has been terminated and you are trying to collect on an uncollectible case.
For example, if the case has been dismissed voluntarily or even by the court with or without prejudice, some judges have said that you cannot collect a fee for such cases since the case "never ended" in a judgment. If you were unsuccessful in defeating the plaintiff’s motion for class certification, you may be precluded from collecting fees since a judgment has not yet entered. These are interesting legal issues that should be studied more thoroughly before trying to include the clause in an uncontested settlement.
How to Get Help
Whether you are the employee or employer, and whether your settlement agreement requires it, you should have an employment lawyer review any settlement agreement before signing. Most importantly, an experienced employment lawyer will know when it is worth pursuing the issue (for example, if you were wrongfully terminated) and when it may make sense to enter into a settlement agreement and avoid the costly litigation that most employers typically find undesirable. Further, the drafter of the agreement will be much more familiar with the prevalent state and federal law, the typical terms of a similar settlement agreement, and what potential loopholes or issues may be present in the draft. In other words, a lawyer could potentially save you from both a good and a bad deal.
Wrap Up: Making Successful Settlements Work
We trust the overview and accompanying FAQ’s will assist you in understanding the typical provisions of a settlement agreement and release . Accordingly, it is our opinion that the more carefully a settlement agreement and release is prepared, executed, and implemented, the more effective such settlement will be both as to the parties involved and the likelihood of avoiding further litigation.