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Don't Settle for Less: Strategies for Settling Employment Disputes
Practical Law Legal Update 3-618-1743 (Approx. 5 pages)
Don't Settle for Less: Strategies for Settling Employment Disputes
by Practical Law Labor & Employment
| Law stated as of 18 Aug 2015 • USA (National/Federal) |
Resources to help counsel when settling employment disputes. This Legal Update includes links to resources with strategy tips from both the employer's and employee's perspectives, sample settlement and separation agreements with drafting notes, recent jury verdicts and settlements and information about mediating employment disputes.
Most employment lawsuits never get to trial. Some are dismissed at the motion stage, either on a motion to dismiss or a motion for summary judgment. However, many employment disputes are resolved each year through a negotiated compromise or settlement.
There are many reasons employers settle employment disputes, including:
- The high cost of litigation.
- The risk of a large jury verdict, including punitive damages recoverable under some statutes.
- Distractions from the company's business.
- Concerns about negative publicity.
Plaintiffs also have many reasons to settle their employment disputes, including:
- Speedier resolution and settlement payments, rather than being tied up in court and on appeal for years.
- Emotional closure.
- Concerns about embarrassing personal facts that may be disclosed during discovery or at trial.
- Reputational concerns about being viewed as a litigation risk with a new employer or within an industry.
- Litigation costs, especially for plaintiffs unable to secure a contingency fee arrangement with counsel.
Once the parties have decided to settle, many issues arise in the drafting and negotiating of settlement agreements. Employer's counsel needs to know:
- What claims can be released as a matter of law.
- How to draft releases so that they will be enforced by a court.
- How to respond to typical plaintiff demands in negotiation, such as requests:
- to characterize a settlement payment as emotional distress damages;
- to pay attorneys' fees directly to counsel, without any tax withholdings or deductions;
- not to contest a plaintiff's application for unemployment insurance benefits;
- to make many provisions mutual; or
- to remain employed without performing services during a severance period.
Plaintiff's counsel must address similar concerns from a different angle, including:
- What items to agree to carve out of a general release.
- Whether any restrictive covenants need to be modified to maximize a plaintiff's future job opportunities.
- How to secure the plaintiff's right to payment before dismissing any lawsuit or administrative proceeding.
- Whether a plaintiff prefers a lump sum payment or periodic payments over time.
- The tax consequences of any settlement or severance payment.
Practical Law has published several resources for parties contemplating the settlement of employment disputes with strategies and drafting tips from both the employer's and the plaintiff's perspectives, such as:
When deciding whether to settle an employment dispute, employers generally want to know how much monetary exposure they have on the claims asserted. On the flip side, plaintiffs want to know how much they are likely to recover. To aid in this determination for one common employment claim, Practical Law has published Practice Note, Individual Sexual Harassment Jury Awards and Settlements Chart: Overview which contains information about the range of jury verdicts levied against employers and settlements that have been reached in sexual harassment cases filed in federal courts from 2004 to 2014. The chart includes a sampling of individual sexual harassment jury verdicts and settlements organized by federal circuit court.
One way of arriving at a negotiated compromise is through the process of voluntary mediation. For parties contemplating mediation, Practical Law has published resources addressing the unique concerns that arise in employment cases, including:
Once the parties reach an agreement, they typically document the settlement terms in a written agreement. Practical Law has published standard documents to aid counsel in drafting and negotiating settlement and severance agreements, including:
Practical Law also has published many state-specific versions of those agreements as well as state law Q&As to customize the jurisdiction-neutral version. For links to the state materials, and for more resources about settling employment disputes, see Settling Employment Disputes Toolkit.
For more information on litigating employment disputes, see Employment Litigation: Single Plaintiff Employment Discrimination Toolkit.