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Oral settlement agreement may be binding even if the specifics are unclear

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in Discrimination and Harassment,Employment Law,Human Resources

When it comes to settling New Jersey employment lawsuits on the eve of trial, be forewarned: Understand all the terms of the agreement before you tell the court the matter is settled. Don’t expect to come back to court for a do-over when you later can’t agree on some of the terms. In New Jersey, a deal is a deal—even if it isn’t in writing.

The case: John McDonnell sued his former employer, Engine Distributors, when he was fired at age 69. He claimed age discrimination under the Age Discrimination in Employment Act (ADEA) and the New Jersey Law Against Discrimination (NJLAD).

Before the case went to trial, the parties orally agreed to settle the case for $105,000, to not disparage each other and to keep the terms secret. They told the court they had an agreement but didn’t tell the judge the exact terms (because they were secret). Then the company reneged because its owner thought the deal was different—he thought McDonnell also would be bound by a noncompete clause.

McDonnell sued to collect on the agreement, and Engine Distributors claimed there was no contract. Not so, said the court. New Jersey recognizes oral settlement contracts in which the essential terms are understood, and will enforce those essential terms even if the parties never reach a written agreement. The court ordered the company to pay up. (McDonnell v. Engine Distributors, No. 03-1999, DC NJ, 2007)

Final note: If you have any doubt about the agreement you’re negotiating, speak up. Better yet, ask for a written agreement to be drafted first, so there’s no possibility for confusion.

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