This post explains the 4 most important terms you need to include in a settlement agreement when resolving any kind of dispute for your business.
If you own or manage a business, it’s almost inevitable that, sooner or later, you will need to deal with some sort of dispute. The dispute could be any type – a complaint, a dispute through the Better Business Bureau, or legal action like a lawsuit, arbitration, or mediation. The dispute could also be with any number of persons your business interacts with – employees, managers, or partners, or outside parties like customers, vendors, or competitors.
No matter what type of dispute it is (though especially if it is a lawsuit or other legal proceeding), and no matter who the dispute is with, one thing is for certain: when it's settled, you want it to be settled for good.
Our firm handles business disputes of all types on a daily basis. Most commonly these involve lawsuits or arbitration, though we handle any type of dispute, large or small. When we settle any case, we get it in writing, in a formal settlement agreement, signed by each of the parties to the dispute. Each case is different, but there are 4 clauses in every single settlement agreement that we always include. Failing to do so could create more problems for the client afterwards. This post explains what those 4 clauses are.
1. Release of All Claims
First, every settlement agreement needs a release of claims. This includes all claims, known or unknown, whether or not related to the dispute at issue, that are or could have been brought by either party. The last thing you want is to settle a case with a hostile party and for them to file another lawsuit or send another demand letter to you as soon as you think the original issue is resolved.
When our office drafts a settlement agreement for our clients, we require the other side to agree to release any type of claim they might have against our client, even if it is something the other side does not know about until after the settlement agreement is signed. The law permits even unknown claims to be released so that if in a year from now, the other side discovers something happened that they want to sue you for (again), they cannot. The point of a settlement agreement is finality, so an adverse party needs to be prohibited from continuing to peck at your business with new claims.
2. Integration Clause
An “integration clause” is a term of the settlement agreement that says there are no other agreements between the parties. The integration clause states that the only agreement the parties have is contained in the settlement agreement itself and that no other phone calls, emails, text messages, or other communications may be considered to be part of the settlement. By including an integration clause, you avoid the chance that a stray word in an email prior to the settlement would have any legal effect.
After all, during settlement discussions, the parties often make many offers for different terms. To avoid any confusion (or more disputes) in the future, you need one single document that contains everything you have agreed to. An integration clause states that only the words written in the four corners of the agreement itself have any legal effect. Again, this prevents future disputes about what was agreed to.
3. Choice of Law, Jurisdiction, and Venue
If you settle a lawsuit in North Carolina, but you have a dispute about the other side holding up their end of the agreement, the last thing you want is to have to sue the other side halfway across the country. Likewise, if the other side in a settlement agreement has a dispute with you, you don’t want to be sued, out of the blue, in a different state. That is why every settlement agreement needs to have provisions stating that future disputes about the settlement agreement should be handled in North Carolina using North Carolina law.
For instance, if the other party in a case is located in California, and if they owe you $1 million from settling a lawsuit you filed against them, you need any claims for enforcement of the settlement to be heard in North Carolina (assuming your business is located in North Carolina). That is why settlement agreements need to include these provisions about choice of law (i.e., what state’s law is to be used in interpreting the settlement agreement), jurisdiction (i.e., agreeing to be subject to the jurisdiction of North Carolina courts), and venue (i.e., the location of the court that will hear your case, such as the Mecklenburg County court).
4. Confidentiality and Non-Disparagement
Last, but certainly not least, any settlement agreement needs provisions about confidentiality and non-disparagement. A confidentiality clause says that neither side is permitted to discuss the terms of the settlement, the negotiations, and the facts that led to the dispute. In settlement agreements our office drafts, we usually prohibit either party from discussing any of those things, though occasionally we include a clause stating that the parties may only state that the case is resolved to their satisfaction.
Similarly, non-disparagement provisions are also necessary. A settlement is pointless if the opposing side can badmouth you to friends, family, the news, or on social media. The point of a settlement agreement is to end the dispute, not to create more bad blood.
Most settlement agreements also say that if one of the parties violates the confidentiality or non-disparagement provisions, the other side can take them to court to ask a judge to order them to stop making statements about your business or about the case.
Conclusion
These 4 settlement terms are only the tip of the iceberg when it comes to resolving business disputes. There are typically many provisions that need to be included in a settlement tailored to your specific case. That said, these 4 settlement terms are the cornerstone of any agreement, and will help to ensure that once the case is closed, it will stay closed.
Dye Culik PC is a business law firm in Charlotte, North Carolina that serves businesses, entrepreneurs, and executives throughout the state. If you have a dispute or a lawsuit involving your business, contact us to see how we can navigate it for you to a successful resolution.