Pitfalls When Signing Settlement Agreements

Let’s say that you have a legal issue or disagreement. You were thinking of getting an attorney involved, but it turns out that the other side has agreed to settle your case, for terms that you agree with. Luckily, you avoided having to get an attorney—just sign the settlement agreement, and your problems are solved…right? Well, they may be just beginning.

That’s because there are a whole host of things that can go wrong when you sign or agree to settlements, and particularly, when you agree to them without an attorney present. Settling defendants just love to throw in “poison pill” provisions to ensure that the settlement agreement helps them more than you ever envisioned that they would.

Here are some common problems and pitfalls, when signing settlement agreements:

1. Releasing too many people – Yes, the Defendant will want to be released for whatever it is doing or paying to you. But does that mean you should release, for example, “the Defendant, its agents, employees, officers, subsidiaries and partners,” or any number of other people or entities just because they’re somewhat related to the Defendant? Many releases slip this language in trying to get you to release more people than you want to release.
2. Releasing future claims – It is common for a Defendant to want you to release any claims you may have had in the past. But some try to get you to release any claims you may have against that Defendant going forward in the future. This requires that you have a crystal ball, to actually see whether you’d need to sue this Defendant in the future.
3. Indemnification – Many Defendants want you to go beyond releasing them—they want you to indemnify them. This puts you on the hook to protect them, if anybody else sues them for doing what they are supposed to do in your settlement agreement.
4. Confidentiality and Non-Disparagement – Confidentiality agreements are common in releases. But many releases go so far as to require that you never say anything bad about them about anything, whether related to the lawsuit or not. This amounts to nothing more than a “gag order,” and restricts your ability to speak freely about the Defendant.
5. Allowing payments to be made (without consequences) – Many Defendants will want to make payments on any money they agree to pay under the settlement agreement. But if you agree to that and the other side doesn’t pay, what are the consequences? Can you sue for the whole amount that was owed to you, or just the amount that you settled for? Do you even want to bother with having to sue again?

With a good business attorney, there are ways to deal with and negotiate all of the above, so they don’t cause you problems later on. Just remember that an agreement in principle isn’t the end of the case. A settlement agreement should be reviewed by a qualified attorney.

You should have a qualified business or commercial litigation at your side, every step of the way, in any legal matters. Call the West Palm Beach business litigation attorneys at Pike & Lustig today for help.

Sources:

law.cornell.edu/wex/indemnify

lawinsider.com/clause/confidentiality-clause