Employment Settlement Agreements

Rather than face a possible negative jury verdict or expensive arbitration decision, employers often will reach an employment settlement to attempt to create better outcomes. Employees can avoid long, expensive lawsuits with a termination settlement.

Employee settlement agreements can reward both parties in different ways, and also protect them. Understanding some basics of employee settlement agreements will help you decide when to go to a lawyer if you are experiencing problems at work or have been notified of your termination.

Settlement vs. Judgment

A settlement is an agreement by the two opposing parties while a judgment is awarded to the winner of a court case or arbitration by a third party. Employees and employers can control the amount of monetary damages with a settlement, something they can’t do when someone else decides on the award.

For example, an employee seeking only three months’ worth of severance might receive a huge settlement in a lawsuit based on what is revealed about the employer’s past practices, or if it’s discovered the company violated federal law.

An employee might win a lawsuit or arbitration but might be awarded very little, based on the fact the jury, judge or arbiter didn’t feel the employee was damaged very badly.

According to employment attorney Bradley Glazier, of Bos & Glazier, the vast majority of employment lawsuits are settled and do not go to the jury. This might mean that it’s worth your while to look into taking action against your company if you feel you’ve been harmed, rather than signing papers your HR department gives you during a termination meeting.

Level of Compensation

One of the main aspects of an employee settlement agreement is how much the employee will get. In addition to asking for a specific amount of money, you might ask for an extension of your health care benefits and other perks you had when you were an employee, such as finishing out an annual gym membership.

If you are simply looking for money to help you until you can find work again, you might ask for a settlement that is equal to three, six or nine months’ pay. If you believe that a jury might award you a significant amount of damages, but you can’t risk paying large attorney’s fees after a lost trial, or you can’t wait months or years for the money, you might settle for less than the money you might have won.

Admission of Wrongdoing

Another common feature of employee settlements is that the company gets the opportunity to admit to no wrongdoing on its part. This can help prevent future lawsuits, not only from you, but from other employees in the future. You should also make sure that you admit to no wrongdoing. If not, this could come back to be a problem for you if you are ever asked by a future potential employer if you had ever admitted to or been terminated for any wrongdoing at your previous jobs.

Settlement of All Claims

When you sign a settlement, you might be asked to waive your right to all future legal action against the company. This means that if new information comes to light in the future – such as when another employee sues the company – you may not sue.

Even if a future action you want to bring is completely unrelated to your firing (such as a health issue you find you’ve later developed), you might not be allowed to take the company to court.

Non-Disclosure Agreement

As part of your employee settlement agreement, you might be required to keep quiet about the settlement, including your charges against the company, the company’s response and the amount of money you received. Revealing any details of the agreement in the future could result in your having to return your award money, and a possible lawsuit and monetary penalty.

Signing a non-disclosure agreement can also make it more difficult for you to cooperate with law enforcement agencies in the future, or help a fellow employee who was harmed and needs your corroboration of what went on at the company, points out Forbes magazine.

Non-Compete Clause

Another common settlement agreement item is a non-compete clause. This prevents you from going to work for a company’s competitors and announcing to your clients and customers that you are now working for them.

Non-compete clauses are difficult to enforce because they must be specific and narrow. For example, if you worked as the head chef at an Indian buffet in Roswell, Georgia, an employer can’t ask you not to work in any restaurant in the state of Georgia for 10 years.

The company might be able to enforce a non-compete agreement that prevents you from opening another Indian restaurant within 10 miles of them.

Mutual Valuable Consideration

In order for your settlement to become a legally binding contract, both parties must get something out of it. The value each party gets is called consideration. Your consideration might be cash, while the company’s consideration is your agreement to waive your right to future legal action and a non-disclosure clause.

In the restaurant example above, the chef who is leaving might receive cash in exchange for not opening a competing restaurant nearby. If the chef who is leaving was taught how to cook Indian food and shown specific techniques and recipes, he might be considered to have received valuable consideration (the skill of cooking Indian food and the restaurant’s recipes, which he can use elsewhere outside of his non-compete area).

Always Use an Attorney

Do not attempt to negotiate an employee settlement on your own, or sign any “routine forms” on your way out the door if you have any type of dispute with your employer. An employment attorney will be able to spot potential problems and opportunities and will be up to date on your state’s laws.

For example, beginning in 2020, California enacted a law that made it illegal for companies to include a “no re-hire” provision in contract settlements. This provision had made it legal for employers to prevent an employee from coming back to work at the business or a related company, according to The Employer Report.

If your employer tells you that your employment contract requires that you fill out certain forms, you can still wait and contact an attorney. The company might be legally able to have you sign certain forms to get your final severance.

These forms are agreements or reminders that all employees of the company might have to sign and cover things like not revealing company secrets, not contacting the business’s customers and acknowledgement that you have returned all company property.