Settlement Agreements

Many lawsuits end because the parties agree to settle their claims. When that happens, the parties usually memorialize their settlement in an agreement. Although I discussed a key aspect of settlement agreements, the release, in a previous post, these agreements normally have other important clauses.

Why should you continue to read this post about settlement agreements?

• You agreed to do so as part of a settlement.

• You feel good hearing about adversaries coming together to agree on things.

• Most settlements are confidential, so you’re having trouble finding information about how this process works.

Since many settlement agreements are confidential, pictures from peace treaty signings are the closest I can get to relevant images. (Image Credit)

Recitals

Many settlement agreements begin with “whereas” clauses, that define key terms and introduce a reader to the reasons why the parties are entering into the agreement. Many courts have held, however, that the statements in these clauses are not legally binding.

Voluntary Dismissal

The most important aspect of a settlement agreement is the release. This is what gives the defendant comfort that it will not need to litigate future cases with the plaintiff arising from the same subject matter.

But another major component of a settlement agreement is the provision in which a plaintiff agrees to end her lawsuit against the defendant. Often, the agreement will give the plaintiff a certain number of days after the agreement is executed to notify the court that she is withdrawing the case. Some agreements even contain a form that the parties agree upon, which the plaintiff agrees to submit to the court to withdraw the case.

Payment

Plaintiffs often enter into a settlement agreement to receive payment from a defendant. The settlement agreement usually specifies the amount of the payment, as well as when it is due and how it will be paid.

Many settlement agreements also discuss the tax treatment of the settlement agreement. For example, settlement agreements in employment disputes will often specify which portion of the settlement payment is subject to payroll taxes and which is not.

No Admission, and Non-Disparagement Clauses

As I mentioned in an earlier post, many parties are concerned about their public reputations, not just whether they win or lose in court. This is why a defendant may also want to ensure that the plaintiff does not say negative things about them outside of the context of a lawsuit. To accomplish this, many settlement agreements contain non-disparagement provisions that require plaintiffs not to say anything negative about the defendant.

Some settlement agreements make the non-disparagement obligations mutual, so that neither party can say anything negative about the other.

A defendant may be additionally concerned that someone may argue that the plaintiff’s allegations must be true since it agreed to pay money because of them. This is why many settlement agreements contain a statement that the defendant is not admitting liability, but is only settling with the plaintiff to avoid further litigation.

Confidentiality Provisions

Settlement agreements may also contain non-disclosure provisions that prevent the plaintiff from discussing the settlement. In the employment context, state laws may govern how and when an employer can ask an employee to keep information about discrimination confidential. But in many other commercial disputes, parties are generally free to agree to keep the terms of an agreement confidential.

Negotiating a Settlement Agreement

Every dispute is unique, and so settlement negotiations vary considerably. But generally speaking, parties do not just settle cases because they think they are going to lose. They settle for a variety of reasons, especially because the cost and burden of litigation is often greater than its rewards and because litigation is unpredictable (idea for website?) and the desired outcome is never guaranteed.

As a result, parties are often flexible at different stages of a dispute to discuss a settlement. Once the parties agree on general terms (such as the amount of money the defendant will pay the plaintiff), it is common for the parties to exchange drafts of a settlement agreement to ensure the specifics are acceptable to both parties.