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A deal’s a deal: Good settlements prevent subsequent litigation

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in Discrimination and Harassment,Employee Benefits Program,Employment Law,Firing,HR Management,Human Resources

Relatively few lawsuits—including discrimination and employment-related cases—are actually tried in a courtroom. In most cases, the parties reach a private settlement.

In the typical settlement scenario, the employer agrees to pay a sum of money or provide some other benefit. The employee agrees to release his or her claims against the employer and then withdraws the lawsuit. The terms of the settlement are spelled out in a formal contract so both parties understand their rights and obligations.

But what happens if the parties reach a settlement and the employer holds up its end of the bargain, only to have the employee have second thoughts and bring another lawsuit?

In two recent cases, judges dismissed those subsequent suits and enforced the terms of the original settlements.

No do-overs

In Conti v. County of Mercer (WL 4255931, N.J. App. Div., 2009), a county employee claimed he had been the victim of workplace harassment and trumped-up disciplinary charges.

The parties entered into a settlement, with the employer agreeing to support the employee’s disability retirement application and withdraw pending disciplinary charges. In return, the employee agreed to retire and dismiss his claims against the county. The parties signed a settlement agreement in 2004.

Despite the settlement, the employee filed another lawsuit two years later, bringing a number of discrimination claims against the county.

The county argued the case had been settled. The judge agreed and dismissed the case, and the decision was upheld on appeal.

The court explained that it is the public policy of the state of New Jersey to enforce settlement agreements unless there is evidence of fraud or “other compelling circumstances.” The court then looked to the specific language of the settlement and agreed it “clearly and unequivocally expressed the parties’ mutual intention” to end and resolve all issues and differences between them. As the judge put it, the parties anticipated that the settlement “was going to end it.”

Finally, the court ruled that the employer gave “substantial benefits” to the employee under the settlement, in that it did not pursue disciplinary action that could have resulted in his termination, and instead allowed him to retire on a date that was mutually agreed upon.

Employee knew better

In another recent case, Geraghty v. Insurance Services Office (WL 1025544, USDC, 2009), a high-ranking executive brought a lawsuit claiming he was a whistle-blower. According to the employee, he had been terminated in 2007 in retaliation for bringing a prior lawsuit and assisting in a government investigation of an alleged scheme to charge improper fees related to the administration of a company pension plan. He claimed the charges violated the Employee Retirement Income Security Act (ERISA).

The parties entered into a settlement, and the employee received about $250,000 in severance pay. The settlement agreement contained broad language stating that he was releasing his claims. However, the document did not state that the employee was releasing claims arising under the New Jersey Conscientious Employee Protection Act (CEPA), the state’s whistle-blower law.

The employer moved to dismiss the lawsuit, arguing that the CEPA claim was within the scope of the settlement agreement and release-of-claims provision.

The court agreed and dismissed the case. The judge found that the employee—a sophisticated and well-educated senior executive who had the benefit of legal counsel throughout settlement negotiations—fully understood his rights under CEPA when he entered into the agreement and signed the release.

Lessons for employers

The Conti and Geraghty cases uphold the longstanding legal principle that settlements are generally enforceable unless the party attempting to get out of the settlement can prove the existence of fraud or duress, or make a genuine showing that he or she did not understand the terms of the agreement.

Absent such unusual circumstances, courts will normally enforce the agreement as long as the employee:

  1. Is represented by an attorney
  2. Has enough time to consider and understand the proposed settlement terms before agreeing to them
  3. Receives money or some other benefit that he or she is not otherwise entitled to receive.

To ensure that a settlement will hold up, have your attorney negotiate it. If you have a sophisticated and experienced HR staff and you decide to negotiate settlements without the direct involvement of a lawyer, at least have your attorney review the proposed terms and documents to ensure there won’t be any surprises down the road.

Note: Be aware that the ADA contains some specific terms that must be incorporated into the settlement of federal age discrimination claims to make them enforceable.

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