Things You Should Know About Settlement Agreements

Employment settlement agreements are legally-binding documents that underscore negotiated terms between an employer and an employee. Settlement agreements arise out of a myriad of situations. Generally, employment settlement agreements are a result of allegations (brought by an employee) of a violation of employment law. Although every situation is unique, employment settlement agreements contain common provisions.

Severance Pay

Employment settlement agreements are established as a result of employment disputes. Disputes can occur for a number of reasons, but whatever the reason, settlement agreements often include terms that address severance pay. Typically, these terms include the overall amount of severance pay and whether the payment will be received by the employee in a lump sum or in various installments. While negotiating, an employee and employer will come to an agreement on the amount of the severance pay. Severance pay amounts are determined by the amount of money an employee would have earned over a specific period of time.

Denial of Allegations and Liability

Because employment disputes generally arise due to allegations of violations of employment law, employers often include a denial of allegations in settlement agreements. Some employment settlement agreements include provisions that state all parties to the agreement refuse to make any admissions of liability and the agreement signifies a compromise and nothing more.

Release of Claims

Release of claims provisions are commonly included in employment settlement agreements. Generally, an employee will have filed a complaint with the Equal Employment Opportunity Commission (EEOC) alleging that his employer engaged in discriminatory practices. In exchange for the employee agreeing to take back the complaint, the employer will pay the employee an agreed-upon amount of money.


Eric Gordon notes that consideration is an important part of any employment settlement agreement because since agreements are contracts, contracts require consideration to be legally valid. Always talk to an attorney about legal issues and matters. Consideration is defined as a benefit in exchange for a promise. In an employment settlement agreement situation, the consideration could be the employer’s agreement to pay the employee severance pay, for example. The promise is typically the employee’s agreement to release the employer from existing claims.