Settlement Agreement Template

Settlement Agreement Template

What Is a Settlement Agreement?

A Settlement Agreement is a legal document signed by an employer and an employee under which an employee agrees not to file a suit against the employer. Whether the employee waives the right to bring a claim against discrimination, wrongful dismissal, or unfair dismissal, this is often followed by a termination payment from the employer.

Alternate Name:

  • Settlement Contract.

Settlement Agreements are also signed by workers who waive their right to paid holiday. Usually, this type of agreement is signed to bring the employment relationship to an end. You can download a ready-made Settlement Agreement template below or compose a more personalized document using our online form builder.


Settlement Agreement Types

Each type of settlement has its own rules and benefits so you are free to negotiate their terms and conditions depending on your needed circumstances:

  1. Structured Settlement. If the parties agree on this type of settlement, that means the employee will receive a payment within a specified time and at specified intervals - monthly, yearly, or even every few years. The employer may pay the employee in installments.
  2. Lump-Sum Settlement. Choose this type of settlement if you want immediate payment. The receiving party gets paid in full all at once. Most employers prefer this settlement because it allows them to write their payment off on their taxes.
  3. Straight Life Annuity. This is a rare type of settlement that guarantees an income stream in the form of a structured settlement until the death of the recipient.
  4. Joint Survivor Annuity. It is quite similar to a life annuity, but it does not end when the recipient dies - the beneficiary continues to receive payments after the primary recipient's death.

How to Make a Settlement Agreement?

A sample Settlement Agreement between two parties has to include the following information:

  1. The names and contact information of the parties.
  2. A full breakdown of salary, expenses, and benefits due up to the point of termination. Refer to the Commission Agreement if the employee is due any commission payments.
  3. Termination payment. Negotiate with the other party to choose the type of settlement.
  4. Waiver. The employee agrees not to file any claim arising out of their employment with the employer, or the termination of the contract. List all possible claims - breach of contract, wrongful dismissal, unfair dismissal, unlawful deduction from wages, etc.
  5. Confidentiality. The parties agree to keep the terms and conditions of the agreement confidential. You may add the parties' obligation not to make any derogatory or adverse comments about each other.
  6. Signatures of the parties that make the contract legally binding.

How to Void a Settlement Agreement?

Just like any other contract, a Settlement Contract may be void if it is not valid, to begin with. A valid contract means that two or more parties entered freely into an agreement with a promise to do something in return for a benefit. In the absence of any one of these elements, the entire contract becomes void.

Additionally, if a breach of contract violates the very heart of the agreement - for instance, the employer does not give the employee a check immediately upon signing a lump sum Settlement Agreement, the entire contract becomes void. A court of law may also find the contract void if the agreement was obtained without the free consent of either party, for example, through fraud, coercion, duress, or misrepresentation.

What Happens When a Settlement Agreement Is Breached?

If either party breaches a Settlement Agreement, for example, an employee takes legal action or an employer fails to pay, the wronged party may send a Breach of Contract Notice and later file a counterclaim for the breach of contract. Generally, a court awards the non-breaching party damages for losses suffered as a result of the breach. If your Settlement Agreement contains an enforceable repayment clause, the employee who breached the contract may be ordered to repay all money already received, along with the legal fees incurred by the employer.

Related Forms and Templates:

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