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The “Standard” Provisions in an Employment Settlement Agreement

Posted in Highlight, Human Resources (HR) Compliance, Litigation, Manager & HR Pro’s Resource Center

The title of this post is, of course, a bit misleading.  Any lawyer will tell you that each employment case you may have is unique and that any settlement must take into account the facts and circumstances of the particular case.

All true.  And, if your company is negotiating a settlement, you ought to have your agreement reviewed by an attorney.

But for those wondering what provisions “most” settlement agreements contain, I thought it would be helpful to outline a few from an employer perspective.

  • Consideration/Payment — This paragraph describes what the employer is typically paying in the settlement and whether the paymen

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    t is to be made in a lump-sum or over time.

  • Release — Probably the single most important part of the agreement. The employee is typically waiving all of his or her rights in this paragraph.
  • Covenant Not to Sue – In this paragraph, the employee agrees not to sue the employer in the future.
  • Stipulation of Dismissal – Of course, since there is a settlement, if the matter is pending in court, the employee agrees that the matter will be dismissed as settled (various courts term such a dismissal differently).
  • No Admission of Liability – Each party agrees that the agreement is not an admission of liability but that the agreement merely represents a compromise.
  • OWBPA-compliant provisions — If the employee is over the age of 40, the Older Workers Benefit Protection Act may come into play. If so, provisions relating to OWBPA (covered in this prior post) may need to be added.
  • Confidentiality – Nearly all of the settlement agreements nowadays contain some type of provision that calls for the settlement to remain confidential (with some limited exceptions for attorneys, accountants and those within the company with a business need to know).
  • Non-disparagement — As with the confidentiality clause, often times employers (and employees) insist that the other party cease from saying negative things about the other.
  • No Rehire – If the employer is settling a dispute from a termination, typically, the employer does not want to have to rehire the employee. This provision provides that the employee agrees that he or she will not seek re-employment and waives any right to be rehired.

This list is far from comprehensive but is a starting point for employers to consider.  There are other standard provisions (governing law, severability, etc) that are also routinely added too.

Although it is a bit dated, there’s still a great checklist of all such provisions in employment settlement agreements that you may also want for your library prepared by Attorney Robert Fitzpatrick. It remains among the more comprehensive lists I’ve seen out there on the subject. It doesn’t have some of the more recent developments (such as Section 409A regarding executive compensation), but it’s a good primer on the subject.

(And another  reminder, please be sure to consult with your legal adviser regarding the drafting or reviewing of a settlement agreement that will fit with your unique legal circumstances.)