Settling an Employment Discrimination Case: The Agreement

Employment discrimination cases are often resolved by settlement – i.e., a negotiated agreement for the parties to discontinue a case on agreed-upon terms.

A settlement can be reached either before or after the commencement of litigation. In many, if not most, cases, the agreement will be reduced to a writing and signed by the parties. Below is a brief discussion of some of the provisions that typically appear in such agreements. Bear in mind that every case – and, hence, every settlement – is different; what may be an undisputed term in one case might be a “deal breaker” in another.

If you are presented with settlement agreement (often titled a “Confidential Settlement and Release” or the like), it is a good idea to review it with experienced employment counsel, so you have a full understanding of what you are being asked to sign. Bear in mind that every settlement agreement confers rights, and imposes obligations, on both parties. A full discussion and analysis of each provision is beyond the scope of this article.

Non-Admission of Wrongdoing

Most agreements contain language stating that the defendant/employer does not admit wrongdoing, that the settlement is being undertaken as a business decision, etc. In my experience plaintiffs are sometime surprised by this, but this provision reflects the parties’ decision to amicably resolve the matter, in light of the costs of pursuing it – on both sides.

Payment

This, along with the Release (below), can fairly be considered the “guts” of the agreement – i.e., the enticement/inducement for the plaintiff/employee to give up their right to sue. Issues associated with this clause typically relate to the timing of payment (i.e., whether the payment is to be made as a “lump sum” or in installments) and, as discussed below, taxes.

Release of Claims

This provision is the “yin” to the payment’s “yang” – i.e., this is what the employer/defendant is receiving in exchange for paying the settlement sum. Usually, this section contains a laundry list of statutory and common-law rights that the plaintiff is agreeing to forego in exchange for money. Usually there is language providing for claims “known or unknown”, or the like – i.e., the plaintiff is being asked to assume the risk of, for example, discovering facts down the road that might support a claim that plaintiff is being asked to waive.

Confidentiality

This is a relatively common provision in agreements settling employment discrimination claims. Typically there is a carve-out for the employee to discuss the agreement and its terms with, e.g., their immediate family members, attorneys, and tax professionals. This is often a key provision required by the employer.

Taxes & Indemnification

It is a good idea to be as clear as possible as to how the settlement payment(s) are to be treated for tax purposes – i.e., whether, and to what extent, the payment(s) is/are to be characterized as wage-based income (from which taxes will be removed and for which a Form W2 will be issued; essentially a payroll check) and/or non-wage-based income (from which taxes are not taken out and for which the employer issues a Form 1099). Contrary to what many believe, settlement payments in employment discrimination cases are likely to be considered taxable income. Since this is a complex issue, it is always advisable for the employee to retain the services of a tax professional (tax attorney or CPA).

Many agreements also contain an “indemnification” provision, which (in sum) is an agreement to pay for an obligation incurred by another (here, the employer). As with other terms, the specific language is or may be subject to negotiation.

Non-Disparagement

This provision requires the parties not to “disparage” – i.e., say bad things about – the other. It is preferable to have this go both ways – i.e., not only will the plaintiff agree not to say bad things about the employer, but the employer agrees not to say bad things about the employee.

“Neutral” Reference / Inquiries From Prospective Employers

Depending on the circumstances of the employee’s departure from the employer, the parties may agree to include a provision relating to how post-departure inquiries – specifically, from prospective employers – will be addressed by the employer. Many employers will not agree to say more than the employee’s dates of employment and job duties, while others may agree to provide a more detailed summary in the form of a letter of recommendation.

No-Rehire / “Do Not Darken My Door”

Many agreements contain a provision stating that the employee agrees not to apply for re-employment at the employer, and that if they do, the employer may refuse to rehire the employee without being subject to a claim of retaliation.[1]For a discussion of such a provision, see Tongring v. Bronx Community College of City University of New York System, 2014 WL 463616 (S.D.N.Y. 2014) (“The protected activity prong is not met for an ADEA claim. Plaintiff contends that he was retaliated against in the form of being presented with a ‘do not darken my door clause’ in his contract that prevented him from being paid after he was terminated as an adjunct. However …, payment for services is not a protected activity under the ADEA and cannot form the basis for a retaliation claim.”)

Non-Solicitation / Non-Competition

This provision imposes restriction(s) on the employee’s (i) solicitation of the employer’s customers or employees, and (ii) competition with the employer.

Breach of Agreement / “Liquidated Damages”

Many agreements specify what happens in the event of a breach of the agreement’s terms. Typically, there is a provision stating that the prevailing party is entitled to recover their attorney fees and/or “liquidated damages”, which is a sum certain specified in the agreement.

CONCLUSION

The document reflecting the parties’ agreement to settle an employment discrimination case has a number of moving parts, and will likely contain many provisions, some of which are discussed above. As noted, the finalized document will impose obligations on both parties, which they ignore at their peril.

   [ + ]

1. For a discussion of such a provision, see Tongring v. Bronx Community College of City University of New York System, 2014 WL 463616 (S.D.N.Y. 2014) (“The protected activity prong is not met for an ADEA claim. Plaintiff contends that he was retaliated against in the form of being presented with a ‘do not darken my door clause’ in his contract that prevented him from being paid after he was terminated as an adjunct. However …, payment for services is not a protected activity under the ADEA and cannot form the basis for a retaliation claim.”