What is a Settlement Agreement?
Settlement agreements are a fundamental part of the resolution of any legal dispute or litigation. Many settlements, in fact the vast majority, require agreement to an official written, final agreement. Although informal agreements can sometimes be sufficient, particularly when there is a small or likely easily resolvable dispute, a formal settlement agreement is crucial in many instances. This will typically be the case in disputes that have been going on for a long time, or where significant money or other liability is at stake, and therefore also significant cost incurred in advancing the dispute. In such a context, most parties will be wary of binding resolution of their dispute without a formal agreement being entered into.
Settlement agreements generally serve the purpose of resolving a dispute by agreement between the parties, without further litigation or related costs. Such agreements almost always clearly define the parties involved, as well as the key terms of the settlement being reached. These may be broad, covering any claims, causes of action, rights, and liabilities, whether known or unknown, that are related to the dispute, or otherwise they may be very specific and narrowly cover only certain of the claims and disputes that were being resolved. Either way, there should be no ambiguity about what disputes are being resolved by the agreement. This will save the parties from unnecessary disputes in the future, as those related to the interpretation of the agreement , and/or disputes in the future based on a subsequent dispute that was thought to be covered by the agreement but with which it actually was not.
Settlement agreements will also generally include a release of claims, which works to prevent either party from pursuing further legal claims against the other related to the dispute. The release will set out what claims are being released, either by listing them specifically or generally, or by broadly releasing any claim relating to the specific dispute between the parties. The release is a very important part of the settlement agreement.
Other aspects of a settlement agreement will also be important to consider, such as whether confidentiality will be required, and if so what type, and in what circumstances it applies. A further important factor is whether independent legal advice will be required, and, if so, in what form, such as both parties are to independently seek legal advice, or whether one party is to seek the actual advice. When is independent legal advice required? Most commonly, it is required when one or more of the parties is an individual and a credible argument could be made that he or she did not understand, or was not in a position to understand, the nature of the dispute and therefore the settlement, or did not have the capacity to enter into the agreement. Independent legal advice is also needed for more complex disputes, and certainly those involving large amounts of money or other liability.
Understanding the Key Elements of a Settlement Agreement
A settlement agreement is a legal contract that outlines the terms and conditions that all involved parties have agreed to satisfy. The essential parts of a settlement agreement include: the names of the parties involved, the conditions, obligations, and time frames for each party, the governing law, jurisdiction, and venue; the various terms of the settlement including the amount of payment, timing of payments, fees, consequence of default in the payments, indemnities that are applicable, release of claims, consideration for the settlement, confidentiality and non-disclosure terms, consent; an "entire agreement clause" to indicate that it is a complete understanding of the parties, a clause indicating the interpretation of the document, a jurisdictional clause indicating where the agreement will be governed and interpreted, and a signature block for each party.
Release of All Claims Unpacked
A "release of all claims" is exactly what it states. It means that all of the claims that you have against the other party are released. There are lots of different types of claims. If you have any type of claim that you are releasing, you are saying that you cannot bring that claim against the other party in the future. It does not mean that you cannot bring another claim against the other person, or another lawsuit. You cannot bring the claim that you are releasing though. Many times, your settlement document will say "releasing and forever discharging," meaning that you cannot bring the claim again, even 50 years from now. There are a few exceptions to this rule, but for the most part, if you release a claim, it is done.
It is in your best interest to get the other side to sign a "release of all claims." There are various reasons that you may want to do this. Sometimes, you agree to do something in exchange for the release of claims. Other times, it is a part of the deal. Sometimes, it’s a condition precedent that if it’s not signed, then the transaction can’t go through. Other times, it is just to protect the party from future lawsuits. Many people, when they enter into a transaction, don’t know the other party very well. They don’t want to be sued by that person or to have a lawsuit brought against them in the future because of something that happened during the transaction. It makes sense to be protected in the future. It is one of the bases for the defence of res judicata. It also happens in settlements with individuals who may come back years later and sue you again if things go bad. That is the reason that you get a "release of all claims."
Understanding Enforceability and Legal Validity
It is essential that a settlement agreement and release of all claims demonstrate legal validity and enforceability. A release is designed to act as an effective barrier against subsequent litigation. To be legally binding, a release must be supported by consideration. In other words, both parties must benefit from the settlement agreement. Moreover, the terms of the settlement agreement must be mutually agreed upon by both parties: the employer and the employee. An employer’s offer or proposed settlement agreement should be accepted on the proposed terms in order for the agreement to go into effect. If the terms are unilaterally changed, it no longer remains an acceptance of the original offer. A settlement agreement only becomes binding once the precise words of the offer are accepted, unless the offer states otherwise.
The question of whether a release is appropriate or whether it is valid can also include factors such as public policy and the scope of the agreement. For instance, an individual may waive all claims that he/she has against his/her employer for violations of federal, state, and/or local laws, which could include claims for false imprisonment or wrongful termination. A release may also not be valid in cases where the employee was not provided enough time to review the settlement agreement, such as under the federal Age Discrimination and Employment Act (ADEA), which confers upon the employee the right to take "at least 21 days" to consider a release and the "right to revoke" it within "7 days" of its execution. This means that employees must have at least 7 full days after signing the release agreement to withdraw their consent if they so choose. Employers can ask the employee to return a signed release during those 7 days, but the release must plainly state that the employee has the eight days to revoke and that no right or claim created by any federal, state, tribal, or local statute, law, ordinance, or regulation will be revoked or withdrawn for any reason, except to the extent that such revocation would prevent the compromised set-off with respect to the amounts to be paid by the Company under the Settlement Agreement.
Clearing up Misconceptions About Releases
A common misconception from employees is that an agreement that says "release of all claims" does just that: releases all claims. In reality, there are always exceptions to what a release releases. For example, as noted above, a release under the Age Discrimination in Employment Act (the "ADEA") requires that the employer follow the ADEA’s "transitioning employees" rules, as codified in the "Older Workers Benefit Protection Act" (the "OWBPA"), which is codified at 29 U.S.C. ยง 626(f). The OWBPA generally requires that the employer identify, and the employee acknowledge any applicable "ADEA group" offers that are not covered by the release (i.e., separation packages). Similarly, employers and beneficiaries under pension plans may be subject to "QJSA" requirements that must be met for certain types of releases. And, while its pervasively referenced in ADEA cases , the internal Revenue Code can (and does) require similar releases.
Another common misconception is that language in a release that says it cannot be construed to release "claims that exist" at the time the alternative dispute resolution agreement was signed means that "all claims" are released, with language that merely says that will not be construed to mean that claims that exist are released because that would be redundant. There are a few problems with this interpretation of that language. First, it ignores the contextual meaning of "existing" at the time "accrual." There is also case law that interprets "existing" at the time of contract (or resolution) as what exists at the moment that it is incorporated into the document. And, the fact that this language explicitly references an "ADR" agreement indicates that it is not an all encompassing release. Rather, it is limited to context of the document itself, which is usually not all encompassing.
How to Draft a Settlement Agreement: Some Tips and Best Practices
When drafting a settlement agreement, it is pertinent to consult with counsel for both the plaintiff and the defendant to ensure that all issues are covered. Depending on the issues in the case, a plaintiff’s counsel should have knowledge of the legal requirements for plaintiff’s claims or other issues that impact upon the release. The applicable statutes must be cited in the appropriate places so that the plaintiff’s counsel approved of the release. Collectively, plaintiff’s and defendants counsel should review all applicable statutes to ensure that the release covers all aspects of the respective parties’ rights to protect a defense so as to not open up the possibility of further claims. The parties shall make known to counsel any amendments being made to drafts after final approval, so that no later, changes can effect upon the understanding of counsel. Either side may object to an inappropriate amendment which may then be taken up with the court if necessary. Counsel can cooperate with each other as to the timing of payment to the Plaintiff in accordance with the closing of the case, yet the defendant’s counsel must be aware of any deadlines thus set so that they may submit the release and proposed order. Without counsel, a coordinating and efficient method would be to hold a conference call per the court’s schedule to discuss issues of the agreement with all five persons that have drafted this to come to an agreeable contract. If any issue does not default pursuant to the agreed upon alternate remedy, then the matter shall be submitted to the Court for disposition. The language used must be clear and unambiguous so that there is no later confusion about what was intended by the parties with regard to the release. No ambiguity would be left for "the reasonable person" to determine what tends to be reasonable but rather would for example state "without admitting liability," or "guilty of crime," so as to not confuse the reader with the meaning of what is considered to be "innocent" and "assuming," or "subsequently."
Why You Need a Lawyer to Draft and Negotiate Your Settlement Agreement
Recognizing the importance of an experienced attorney to assist in drafting, reviewing, and negotiating the terms of a settlement agreement and release of all claims, if you are being presented with a release and settlement agreement and asked to accept less than you deserve, it may prove valuable to seek outside legal assistance from someone with experience in a similar practice area. Such a practice area includes, for instance, insurance, insurance claims, automobile accidents, semi truck accidents, premises liability, slip and fall, pubic transportation accidents. A review of the relevant law with an experienced attorney can help ensure proper guidance as to the terms received in exchange for a release, as well as help to prevent undercompensation or invalid releases. In addition, working with an experienced attorney in this area can help to ensure that the language in a release is free of hidden terms that can invalidate the release and even subject a party to a lawsuit even after signing a release. Working with an experienced attorney is wise in drafting and preparing for release, as well as in reviewing, negotiating, and drafting settlement agreements.
Case Examples: Real-Life Settlements
Settlement agreements and releases of all claims are prevalent in a variety of disputes. For instance, such an agreement was used to resolve a contract dispute between two companies where one party had failed to adhere to the terms of a franchise agreement. Another outcome of a settlement agreement could be an employment dispute where a former employee files a lawsuit against his previous employer for wrongful termination. A settlement could be reached where the employee agrees to waive all claims he may have against his employer, including wage or disability discrimination claims. A recent case before the Australian Commercial Tribunal highlights the application of a settlement agreement and releases . In the case of Re: Berger LGB, the senior executive filed a complaint asserting that he had been wrongfully dismissed by his employer. The parties entered into a commercial settlement agreement which included the condition that the senior executive was to release all claims against his former employer. After the signing, it was discovered that of the claims accumulated by the senior executive against his employer, the right to appeal his workplace termination was not expressly covered by the release agreement. Nonetheless, the senior executive was barred from commencing an appeal because he had accepted the benefits of the settlement agreement he had entered into with his employer.