Clauses That Can Be Used For Settlement Agreement
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10 Clauses That Can Be Used For Settlement Agreement

| November 27, 2023

Settlement agreements in employment cases often get resolved without going to court. When this occurs, clients typically receive agreements to sign. These documents can vary from 5 to 25 pages, which might feel like a lot to digest. 

Understanding certain typical clauses in these agreements before diving in can make it easier to comprehend what you’re agreeing to. Recognizing these standard elements can be really helpful as you review your settlement agreement.

The Clauses Of Settlement Agreements

According to the settlement agreement, there are a huge number of clauses that can be used or employed in a settlement agreement. Hence, we’ve picked up a chunk from the sea of options and explained them here for your information. Hopefully, it’ll be helpful for you.

1: The Basic “Whereas” Clause

Consider this as an opening summary. Despite the rather formal term “whereas,” this section outlines the events of your case thus far. 

It typically includes the date of claim filing, specifies the type of claim made, and emphasizes the mutual desire of both parties to settle the claim without going to court to prevent additional expenses. 

Additionally, it’s customary for the defendant to include a section asserting their innocence, although this might not always reflect the actual situation.

2: The “Method Of Acceptance” Clause

A settlement agreement tends to have precise rules on how a person can formally accept them to avoid any confusion. 

The section regarding “method of acceptance” outlines the specific actions, such as signing and sending, to whom, and by when, that validate one’s acceptance of the agreement. Failure to adhere to these specified methods might result in the terms not being effectively accepted.

3: Dismissal And Settlement Proceeds/Payment Clause

The majority of settlement agreements typically entail exchanging money for the resolution of an ongoing claim. 

Within an employment settlement agreement, the section on dismissal details the method and timing for the complaining party/plaintiff to formally end the pending claim.

On the other hand, a settlement payment clause is all outlining the payment details, including the amount and method of payment, as well as the tax implications. 

If you’re receiving both W2 wages and 1099 income in your settlement, it’s advisable to seek advice from a tax expert to understand the distinctions between them.

4: The “Waiver Of Claims” Clause

This clause outlines the various claims you’re giving up in exchange for the money you’re receiving. It’s generally pretty extensive, listing out all sorts of claims, even ones you may not actually have, that you’re agreeing to waive by signing the settlement agreement. 

Often, there’s a broad waiver covering known and unknown claims at the time of signing, along with specific waivers related to the basis of your filed claim. 

It’s important to go over this section with a lawyer because it involves understanding what potential claims you might be letting go of and making an informed choice about it. 

Consulting with legal counsel helps you navigate and weigh your options regarding which claims you can and should waive.

5: The “No Future Litigation” And 

Defendants frequently seek an agreement where you agree not to seek compensation in any potential future lawsuit brought against them. 

This provision allows you to comply with subpoenas if served but forfeits your eligibility for any monetary awards granted in a future lawsuit or settlement.

6:The “No Rehire Clause”

It’s true that some employers include a “no rehire” clause in settlements after a lawsuit. 

This clause essentially bars the person who filed the lawsuit from being rehired by the company later on. It’s a typical inclusion in settlement agreements to prevent potential future conflicts or repeats of the original issues that sparked the lawsuit. 

For employees, accepting such a clause could restrict their chances of coming back to work for that specific company or its affiliates down the line. It’s a strategic choice individuals need to consider carefully, taking into account their situation and future career goals.

7: The “Confidentiality” Clause

When finalizing a proper settlement for an employment claim, employers typically request confidentiality. This requirement usually involves keeping both the agreement’s existence and its details under wraps. Essentially, you’re expected not to disclose that there’s a settlement or any specifics about its terms. 

However, there’s typically a clause permitting you to share this information with your spouse, tax advisor, and attorney. 

Going beyond these individuals could lead to a breach of contract, potentially resulting in a lawsuit and the obligation to repay the settlement amount along with additional damages.

8: The Clause Of “Non-Disparagement”

This section outlines the expectation to refrain from making detrimental remarks about your current or former employer. Whether verbal or written, any negative statements, regardless of accuracy, can result in legal action for violating the contract terms. Such actions could require reimbursement of received funds and potential additional penalties.

9: The “Savings” Clause

This simple yet crucial clause ensures that if any part of the agreement is deemed unlawful or invalid, the remaining sections will remain effective. It serves as a protection mechanism, preserving the enforceability of the agreement despite potential issues with specific clauses.

10: The “Revocation/Consideration” Clause

Certain claims necessitate a designated period for your thoughtful consideration (typically 21 days). Moreover, some situations grant a 7-day window post-signature, allowing you to retract your acceptance. It’s crucial to note the specific notification requirements for revocation to the other involved party. Otherwise, the clause might be against you later on.

The Bottom Line

Remember, the devil can always be found in the details. So, before you sign anything, make it your priority to check the essentials of the same closely. Otherwise, you might end up getting into a legal entanglement that might not be good for your future.

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nilanjana basu
nilanjana basu

Nilanjana is a lawyer with a flair for writing. She has a certification in American Laws from Penn Law (Pennsylvania University). Along with this, she has been known to write legal articles that allow the audience to know about American laws and regulations at ease.

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