Key Terms in An Employment Settlement Agreement

Written by Galen T. Shimoda and Erika R. Sembrano

Employees are sometimes presented with a settlement or severance agreement at the end of their employment with a company or other organization. Other times, an employee is presented with such an agreement when he or she files and settles a case in court. Certain terms are typically included in such agreements. Below, you will find a list of such terms as well as an explanation of what these terms usually mean. However, the language of each particular agreement is what will determine the meaning and effect of the terms.

Waiver of All Claims

Almost all settlement agreements have a clause or clauses that basically say that the employee may never sue the company again for anything that occurred as of the date of the agreement. This may include claims that the employee is not aware of when he/she signs the agreement. Usually, these clauses are pretty long and include any and all claims under state and federal laws relating to wages, discrimination, whistleblower statutes, and other claims based on contract or tort theories. With the exception of a few claims that cannot be waived by law, such as workers' compensation and unemployment claims, settlement agreements will typically include a waiver of all conceivable claims.

In some instances, employers will agree to make such waiver clauses mutual. This means that an employer can also bind himself or herself never to sue the employee for anything that occurred during the employment relationship covered by the agreement.


Almost all settlement agreements include a confidentiality clause that prevents the employee from speaking to anyone about the settlement terms (such as the total settlement amount) and sometimes even about the events that led to the dispute. Certain exceptions are usually included, for example, disclosures to a spouse, attorney, or a financial consultant, such as a tax preparer. At times, the employee adopts an obligation of informing these individuals of the confidentiality of the terms. Another exception that is typically included is one based on law. In other words, if someone is subpoenaed and by law must respond to questions about his or her employment, that would justify speaking about her employment, even if otherwise prohibited by the settlement agreement.

Also, some employers will include a liquidated damages clause. This means that if an employee breaches the confidentiality clause, he or she will have to pay a certain amount of money to the other side and may be liable for attorney's fees and costs. Such liquidated damages can range from $500 to a few thousand dollars per breach. However, this sum must be proportional to the damage and cannot be a penalty. Ultimately, it is best to abide strictly by the confidentiality clause.

Non-Disparagement Clause

Employers and employees often seek to protect their reputation or perception by future employers. A non-disparagement clause, especially a mutual non-disparagement clause, ensures that neither party says anything negative about the other. Bigger companies sometimes try to narrow this clause to include individuals who are most likely to make negative statements about a particular employee.

Neutral Reference Clause

Employees generally seek a neutral reference from their employer. A neutral reference is one where an employer only provides dates of employment, job position or positions held, and sometimes salary or wages earned (if desired). This precludes the employer from saying whether the employee was fired, resigned, or is re-hirable under the company's policies.

Employers sometimes have policies about providing references about former employees, specifically that they may only provide neutral references. This protects the employers from possible defamation claims if they make false statements about an employee's trade or profession.

Amount of Settlement Payment and Date

The settlement agreement also includes the amount of the settlement payment, the date the agreement is effective (note: this may not be immediate for individuals over forty (40) years of age), and the date when the payment will be made. There may also be language relating to the split of any monies, such as whether any of it will be allocated as wages subject to standard tax deductions or whether part of it will be allocated for penalties and attorney's fees.

Other Miscellaneous Terms

Other terms that you will see in an employment agreement include clauses relating to:

  • no admission of liability by the parties to the agreement;
  • sole responsibility for tax consequences;
  • provisions to enforce the agreement if there is a breach;
  • forum (for example, a court or arbitration) where a dispute about the agreement may be resolved;
  • the law governing the interpretation of the agreement (usually California).

If you have any questions regarding an employment settlement agreement, please contact the Shimoda Law Corp to speak with an attorney.


The Shimoda Law Corp. legal articles should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents of these articles are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have.

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