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Settlement Agreements and Releases Involving Employment Issues:
A Practical Guide
Settlement agreements that include releases seek to impose finality in several
contexts involving employment relationships: (1) to settle current litigation; (2) to
prevent threatened litigation; and (3) to prevent litigation as a result of a reduction in
force or reorganization.1 Typically, an employer offers benefits above which an
employee is entitled in exchange for a commitment from the employee that he, or she,
will not pursue litigation against the employer. Simply put, a settlement agreement or
release, requires the basic elements of a contract: an offer, acceptance, and consideration.
However, the employment relationship imposes a unique set of statutes and
considerations on the execution of a settlement agreement, especially when a court looks
at the settlement agreement and its enforceability. Courts perceive the employer to
possess an advantage inherent in the employment relationship and will look at factors
involving the fairness of the circumstances surrounding the execution of a settlement
agreement. Depending upon the claims released, a court will either apply statutory
requirements or common law guidelines.
This paper2 provides tools to increase the likelihood of enforcement of a
settlement agreement by a court. In the instances where statutory requirements are
stringent and enforcement by a court may seem less likely, the paper suggests other
strategies to make the recovery of damages remote. The paper intends to provide a solid
1 Other specialized employment contracts include collective bargaining agreements and non-compete
agreements. Although this paper does not address the enforceability of provisions in collective bargaining
agreements and non-compete agreements, to the extent courts have addressed general contract principles
involving employment contracts, guiding precedent in these cases is included.
2 This pa