An employee (or former employee) should recognize that a proposed Settlement Agreement (“SA”) is a formal contract, with potentially life-long effects on the employee’s behavior and career. The employee must understand the SA and its implications if signed. An employee should never hastily sign a SA “on the spot”, even if pressured to sign in exchange for a large sum of money.
Most SAs contain a release and waiver of all claims, both known and unknown. These releases are usually unilateral, meaning the employee is waiving claims against the company, but the company is not releasing its claims against the employee. In most cases, it is beneficial for the employee to negotiate a mutual release with the company, whereby both parties release any and all claims against each other. Companies often attempt to include provisions in a SA restricting the employee’s activities and behavior in the future, usually without additional compensation. Employees should be alert for “confidentiality”, “non-disparagement”, and “non-competition” provisions, among others. These restrictive covenants create additional legal issues and potential problems for the employee.
A company’s initial offer in a SA is usually not its final or best offer. SAs are usually negotiable, including the amount of severance pay the employee is to receive. If the employee has a potential legal claim, the company may pay additional money in exchange for the release/waiver of claims.
An employee should consult with an experienced employment law attorney when offered a SA. Legal fees incurred in reviewing, advising, and negotiating a final SA are often included as part of the final agreement. In every case, employees need to understand the legal effects of any proposed SA, try to reach an agreement that protects her future career, and negotiate the maximum recovery possible.