What is a Settlement Agreement and Release?
A Settlement Agreement and Release is a contract in which one party generally agrees, in exchange for other consideration, not to engage, interfere, or otherwise harm the interests of the second party in a particular manner. The purpose underlying such an agreement is often the settlement of a dispute between two parties or the prevention of the same between them. Due to the fact that a settlement agreement is oftentimes entered into on behalf of a corporate entity, it is advisable to always have board or committee approval before the agreement is signed .
However, oftentimes, one party runs some sort of risk in entering into a settlement agreement because the other party has made some sort of allegation. To eliminate that risk, the party who is giving up something under the agreement will often ask the other (the "Releasing Party") to promise not to assert any claims related to those facts, which is the purpose of the "Release" provision.
Key Elements of a Settlement Agreement Template
The essential components of any settlement agreement template include:
All parties must be named and identified in the appropriate capacity: for example, John Smith, a single man, as an individual and not as a member of any entity or in any representative capacity.
The following types of details need to be included in the body of the agreement:
- the settlement amount, including a provision for payment of all attorney’s fees;
- a release of all claims by both parties against the other;
- a confidentiality clause; and,
- a governing law clause.
Some of these basic components are sometimes set forth as individual sections of a settlement agreement template or as specific clauses. For example, a release of all claims typically is a distinct Provision within the agreement. Or, a confidentiality provision may be set forth as a separate section of the agreement. Even with these variations, the essential components of a release and confidentiality clauses are the same.
The Benefits of a Template
A significant advantage of using a settlement agreement template and release is time savings. Because the template will usually have the bulk of the provisions and specific language needed in connection with any circumstances, the time in preparing the document should be significantly reduced and any time spent drafting and arriving at a final product will be based on adjusting and modifying the template to meet the specific needs of the situation. This is particularly true for employers with settlement matters that occur on a periodic basis or will be recurring (e.g. an annual separation program, downsizing event or layoff). For an employer with recurring programs or events, having a template will allow for the creation of a "base" document that can be utilized for each following event. Obviously, this will not be the case for a single event and one that is unique. A template will also permit an employer to easily customize the agreement and still have a final product that is readable, understandable and complete. Also, because the template will normally have the appropriate legal terms, it should also reduce the time expended in ensuring legal compliance.
Common Provisions in a Release Template
A typical settlement agreement and release template contains clauses that are beneficial to the parties. In addition to the general components discussed above (material facts of the dispute, consideration, release of claims), many settlement agreements will include the following:
Mutual Release
The mutual release is important to both parties because it protects those who are discharging a claim from any future actions by the other. In other words, in a mutual release, the employee (or plaintiff) and the employer (or defendant) agree to forever discharge any claims the other may have against it. The most common form is a mutual release of claims, under which both parties agree to discharge any present or future claims against each other.
Indemnification
This clause will require one party to reimburse the other for any costs the other incurs as a result of an action taken by third parties. A common indemnification clause requires one party to indemnify any affiliates of the other party for any claim brought by a third party resulting from the breach by that party of the agreement (for example, a breach of confidentiality).
No Admission of Liability
The no admission of liability clause is essentially an acknowledgment that, despite each party’s agreement not to sue the other, neither party is admitting liability in the settlement agreement. These types of clauses, as with most of the provisions in this article, are beneficial to employers because they allow the employer to settle a case without having to admit liability and leave the door open to defend against potential claims in the future. However, these no admission of liability clauses work both ways; an employee may want a no admission of liability clause as well. The no admission of liability clause is important to both parties because it protects both from being forced to admit liability.
Termination of Agreement
A termination of agreement clause provides that upon the breach of any of the terms of the document, either party can terminate their obligations under the agreement and therefore may no longer be bound by the agreement. This is an important clause for both parties because it requires each party to comply with the obligations in the agreement so that they cannot be held liable to the other for any claims they have against them. In addition, these clauses will provide that the party bringing the claim must give the other party notice prior to terminating the agreement.
How to Draft a Settlement Agreement
The beauty of any template form is that it is usually quite easy to customize to the specific circumstances. In the instance of a settlement agreement, this process requires a careful analysis of the facts surrounding the situation in which you find yourself and the desired outcome you want to achieve. After drafting out the initial terms from the settlement agreement template , negotiation may be needed to finalize the document. Consulting with legal counsel in the drafting of your settlement agreement so that all your rights are protected is always recommended.
The Legal Issues that are Relevant to a Settlement Agreement
For both parties involved in a litigation or settlement process, there are a number of important factors that can impact the enforceability and validity of such documents, including the following:
1. Scope
The language of the settlement agreement and release must be carefully parsed so that all parties are in agreement with the scope of the release. Because courts will defer to the intent of the parties, it is essential to ensure that the language of the agreement is clear so as not to give the defendant a different understanding of the meaning of the release.
2. Defenses
Once a release is signed – and unless it is explicitly rescinded in a stipulated agreement or other document filed in a court case – the settlement agreement and release will preclude claims in the future that are covered by the release. In order to avoid arguments that a person did not have full notice of the claims that were released, expressly stating the claims covered or attaching them in an annex or schedule is preferred, as merely explaining that you have released all claims does not provide sufficient notice of what claims are being released.
3. Rescission Rights
In certain circumstances, although it is rare, a settlement agreement or release may be rescinded. These circumstances would generally be set forth in the settlement agreement itself, such as a mutual consent provision, or may occur when one of the parties is in breach of the agreement. If the settlement agreement or release is silent as to how it may be rescinded, a party would need to seek a court order to allow for rescission of the release or settlement agreement.
4. Revoke Rights
Under certain laws, such as the Federal Age Discrimination in Employment Act (ADEA), parties have the right to revoke their agreement to the release within seven days after signing. If the release does not contain this provision, the defendant, and not the plaintiff, would have to initiate a new lawsuit in order to set aside the release based on the defendant’s attempt to revoke the release.
FAQs
What is the difference between a Settlement Agreement and a Release?
A Settlement Agreement is a common means for resolving a dispute between the parties without resorting to litigation. Once the parties have reached an agreement, a release may be used to formalize the specific settlement terms. A Release is a type of contract where one party (the Releasor) agrees to relinquish a claim (legal or equitable) against another party (the Releasee). The Releasor agrees to accept compensation in exchange for their relinquishment of a legal or equitable claim to the Releasee.
Are oral Settlement Agreement or Release enforceable?
Although we do not recommend entering into a Settlement Agreement without having the terms reduced to writing, an oral agreement is binding so long as they demonstrate a meeting of the minds and intent to be bound by the terms that were discussed. Conversely , a Release that is not in writing is not enforceable under the Statute of Frauds.
Will a Settlement Agreement or Release remain confidential if there is a breach of the terms?
The answer will depend upon what is written into the Settlement Agreement or Release. If the terms include language that states that the terms and conditions of the Settlement Agreement will remain confidential, then a party who has breached the contract will not be able to disclose that the other party breached the agreement. If the terms are not included, the parties may be able to disclose the contents of the Agreement.
Once a Settlement Agreement is entered into, what are the procedures when one of the parties breaches the terms of the Agreement?
Assuming the parties’ Settlement Agreement has not contained certain terms that may prohibit, limit, or otherwise alter the enforcement of the Settlement Agreement, the parties will need to enter back into any dispute resolution mechanism that is in place. The process may include alternative dispute resolution mechanisms such as mediation or arbitration. Pursuant to the terms of the Settlement Agreement, the agreed upon terms may be enforceable pursuant to the terms of the Settlement Agreement.