SETTLING LAWSUITS – The Importance of a Well-Drafted Settlement Agreement

Litigation can be emotionally and financially draining. By the time parties reach a settlement agreement, even one with which they are satisfied, they often are tempted to turn their attention elsewhere and ignore the details of the settlement agreement itself. 

Resist the urge to bail before the settlement agreement is finalized.

Here’s why. A well-drafted settlement agreement should contain – or at least consider containing – a number of crucial provisions that will avoid headaches in the future. When drafted crisply, clearly, and without ambiguity, these provisions will assure that the matter truly is resolved, now and into the future.

The following are examples of provisions that must be carefully considered when drafting an agreement that resolves litigation:

  • The Parties to the Agreement – In addition to the actual parties to the lawsuit, it is important to consider whether any other person should be made a party to the settlement agreement. A defendant may want to include potential claimants who are related to, but are not themselves, named in the Complaint.
  • The Scope of the Claim Settled – The key provision of a settlement agreement for the defendant is the “release,” which releases the defendant from the plaintiff’s claims. Releases, however, only are as broad as the parties draft them to be. Pay attention to whether the release is a specific release limited only to the claims brought in the lawsuit, or a general release that extinguishes liability for all matters, whether related to the lawsuit or not.
  • Payment Arrangements – If settlement involves the payment of money, it is worth investing the time into detailing in the agreement the logistics, form, and timing of the payments. Not only will these details avoid confusion, but they may also avoid later claims of default arising from poorly drafted payment terms.
  • Legal Costs and Attorneys’ Fees for Enforcement – In cases involving potential fee-shifting, it is important to state in the settlement agreement whether the parties are responsible for their own attorneys’ fees. Moreover, consider whether the settlement agreement is to provide that in the event of a breach of the agreement, the non-breaching party is entitled to recover attorneys’ fees for its enforcement. 
  • Confidentiality – One common benefit that enures to defendants from settling a case instead of going to trial is avoiding the potential publicity that a trial may bring. Including a confidentiality provision in the settlement agreement helps to keep the matter under wraps.
  • Trade Secrets and Confidential Information/Company Property – Employers may want to use the settlement agreement as another opportunity to protect their proprietary information by including terms that underscore these obligations of a former employee.
  • Nondisparagement – The last thing an employer wants after it pays a plaintiff to settle a case is for the former employee to post on line about what a bad employer the company is. A nondisparagement clause helps prevent this from occurring.
  • Entire agreement – The settlement agreement should indicate that it supersedes any prior oral or written agreements.

When involved in litigation, it is important to pay careful attention from the very outset all the way through the final disposition of the case. The attorneys at Luchansky Law are trial lawyers with an eye for detail. If you are facing a situation involving potential or actual litigation, contact Luchansky Law at 410.522.1020 to discuss the benefit of having strong, experienced advocates on your side.

Categories: FAQ For Employers

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