Understanding a settlement agreement
A settlement agreement is typically used to bring a dispute to a close by agreement, rather than through a court or other formal process. It commonly records the background to the dispute, what each party will do (such as making a payment or taking or stopping an action), and a statement about which claims are being resolved.
How enforceable and effective a settlement agreement is, and what happens if it is not honoured, generally depends on its wording and the applicable law and procedure.
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Points commonly worth checking
These points are descriptive of what a settlement agreement commonly addresses; not every agreement will include all of them.
- Whether the description of the dispute and the amounts involved is accurate.
- Whether the agreement covers all claims between the parties, or only some of them.
- What is described as happening if a party does not comply with the agreement.
- Whether payment terms, timing and method are stated clearly.
- Whether any confidentiality or non-disparagement terms are included, and what they require.
- Whether the agreement is signed by someone with authority to bind each party.
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Before you sign
- 1Compare the agreement against what was actually discussed and agreed.
- 2Confirm the figures, dates and obligations are stated accurately.
- 3Check whether the agreement releases only known claims or also unknown ones.
- 4Keep records of the negotiation in case a question arises later about what was intended.
- 5Consider whether the agreement should be reviewed before signing, particularly for larger or more complex matters.