Settlements – Questions and Answers
This page provides answers to the following questions:
- What does it mean to “settle” a case?
- What is a release?
- I’ve just been fired. My employer is asking me to sign a release in exchange for severance payments. I haven’t even made any claims against this employer. Is this a settlement?
- How do I know if it’s worth releasing my employer from a lawsuit for the amount of money being offered?
- Should I consult with a lawyer about whether I have legal claims and whether to accept this severance?
- What happens if my employer does something illegal to me after I sign a release?
- Have I lost the opportunity to settle my claims against my employer if I reject the severance offer?
- Why would my employer consider settling a dispute with me if I don’t threaten to take them to court?
- My former employer has proposed that we go to mediation. Won’t I give up my right to file a lawsuit if I agree to attend?
- Won’t initiating an offer to settle or go to mediation signal weakness in my case to the other side?
- I’ve filed a lawsuit. My attorney tells me my case looks strong. Why would I want to settle if I won’t get my “day in court?”
- How do I know if a settlement offer is reasonable—the one the employer has presented seems too low?
- What is an offer of judgment?
- How can I decide whether or not to accept an offer of judgment?
- What do you mean if I reject an offer of judgment my attorneys’ fees might not be paid?
- If I don’t settle, will I have to pay the other side’s fees?
- How much will I “net” if I settle my case? (Or, how is my portion of the settlement calculated?)
- I don’t understand how my attorney calculated his share of my award. I don’t think he is following what we agreed to. What should I do?
- What about the award of attorneys’ fees? How is that applied to the gross settlement?
- Do I get to keep the entire amount of my settlement after I pay my attorney?
- My friend received a large personal injury settlement. His entire award was tax free, why isn’t my award tax free?
- In a contingency arrangement, why is my lawyer getting 40% of the gross settlement instead of the after-tax amount of the settlement?
- How will any settlement I receive affect my tax bracket or tax obligations?
- My lawyer is pressuring me to settle. Isn’t it my decision whether we should settle the case?
- My lawyer says if I do not accept the settlement being offered she will withdraw from representing me. I am confused and angry. What steps should I take?
- I’ve talked to my lawyer. We still disagree about settlement. He wants to make a motion to withdraw from my case. What do I do?
- I’m tired of litigation, and just want the case to be over. Should I take less than my attorney tells me my case is worth?
- I’ve been told that I will have to keep the settlement amount confidential if I settle the case. Do I have to agree to this provision?
- What happens if I reveal one of the confidences in my settlement agreement that I am supposed to keep secret?
- My proposed settlement agreement permits me to speak with my immediate family members without breaching the confidentiality provision but doesn’t include my live-in partner. If I can’t avoid discussing the terms of the settlement with my partner, will I have violated the agreement?
- How can I choose an attorney who won’t undersell the value of my case, but who understands I don’t want to litigate forever?
In the context of an employment-related matter, it means to end a dispute with your former, current or prospective employer (referred to as “employer”). Usually this means you receive some form of “consideration” — money, non-cash benefits and occasionally an agreement to reinstate you or offer you a promotion. In exchange for this consideration, you waive, or give up the right to sue your employer, or if you have filed a lawsuit you agree to dismiss your claims.
A “release” is language contained in a document such as a separation agreement or a settlement agreement stating that you release your employer from all actual and potential legal claims in exchange for consideration.
Yes. You may not have any legal claims against your employer, or have not thought about suing the company or organization. However, your employer wants to make sure that you don’t sue it in the future. Your separation agreement is a type of settlement, in effect. You waive your right to sue your employer in exchange for the severance payments.
You need to consider the particular circumstances of your situation, including whether you believe your employer has acted unlawfully. Even then, you need to examine whether the amount of money offered in exchange for your release makes your legal claims worth giving up.
You may want to seek a professional opinion from an attorney before signing the agreement – particularly if you are uncomfortable doing so. This is also good advice, if you are thinking about rejecting the substantial amount of money being offered to you. In either scenario, an attorney can help analyze whether you have any legal claims and whether those claims merit rejecting the money being offered.
You waive only claims which have occurred up through the date you sign either a separation agreement or settlement agreement. You can still bring a lawsuit concerning any conduct or actions which your employer takes against you after that date.
No. You can propose settlement to the other side at any point in an adversarial proceeding (such as a lawsuit or administrative hearing). However, depending on what is being offered as “severance,” it still may be the best option for you to settle now, rather than later. You should seriously evaluate any meaningful offer.
There are many reasons: First, even if you have no claim against your employer, that employer still wants the security of knowing that won’t file claims against them in the future. Where your claims are strong, your employer may well want to minimize the risk of you going forward with a lawsuit.
No. Mediation is a voluntary process. You do not waive any legal rights by agreeing to try to mediate your claims – unless you settle through this process and reduce the agreement to writing. In mediation, both parties agree to explore settlement through a third party trained in facilitating resolution of conflicts. For more information, see our site’s page on Mediation. Keep in mind that many disputes are settled in mediation. In mediation, the parties can use creative solutions to resolve your conflict, including solutions which a court has no power to order.
No. You should not shy away from exploring settlement through mediation or otherwise because you fear you will look weak to the other side. Rather, settlement discussions demonstrate that you want to make a smart business and/or life decision by evaluating an early settlement offer. Settlement discussions don’t mean you concede your claims.
Your former employer may also want to resolve the case now, rather than later. It takes valuable time and often money for an employer to litigate a case in court – even if the company ultimately prevails. For some employers avoiding publicity may also be an incentive to settle early on.
Getting your day in court can be important part of a lawsuit. It allows you to feel heard and empowered – but that’s assuming the case proceeds as planned. Judges rule the courtroom. They control most of what evidence (good and bad for your case) the jury hears. Juries are made up of human beings who have their own views and biases. Going to trial is usually a high-risk situation because it has so many unpredictable factors which neither you nor your attorney can control. Justice does not always prevail.
One way to assess an offer is to determine what the optimal value is of your case. You may be surprised to learn that, under the best-case scenario, the value is not nearly as high as you think. See our site’s page on Valuing Your Case. After realistically valuing your case, you should then discount that amount by some of the factors which can lessen its value. These include:
- adverse evidence which is discovered through the course of litigation;
- the court you are in;
- the attitude and rulings of the judge;
- who is litigating on the other side;
- the probability of appeals even if you win at trial;
- your financial resources; and,
- your tolerance for prolonging the process.
An offer of judgment is a procedure (based on rules which govern lawsuits filed in court) where the other side proposes in writing an offer to have a judgment (or order to pay a specific sum of money) entered into the court docket (or record). If you accept this offer, it is entered. You can enforce this judgment just as if you won a trial and the court ordered an award in your favor.
You need to evaluate any offer of judgment as you would a settlement at any point in your case: weigh the risks and possible gains of going forward against the offer. Rejecting an offer of judgment, however, has one additional risk: If you reject an offer of judgment and win your case at trial you can be penalized if the amount of damages awarded by a jury or judge is less than the amount of the offer of judgment. In that situation, you will not be allowed to seek payment of your attorney’s fees accrued after the date you reject the offer of judgment.
Under most civil rights laws and anti-discrimination statutes, if you prevail in your lawsuit you will be awarded reasonable attorneys’ fees and costs payable by the other side. (See our site’s page on attorneys fees for additional information.) Depending on your own fee arrangement with your lawyer, this may significantly impact your recovery. When you reject an offer of judgment and do not obtain a greater award than the offer at trial, you will not be able to request payment by defendant(s) of your attorneys’ fees for any of his or her time spent after that rejection. Because of this potential penalty, you need to discuss the pros and cons of accepting or rejecting an offer of judgment with counsel.This is a serious legal decision which cannot be summarized adequately on this website. You must weigh the pros and cons of this decision with your lawyer.
No, as long as the lawsuit you bring is not “frivolous” (without any legal basis). To help protect you against filing a frivolous lawsuit, choose a lawyer who is experienced in employment law. Also, always read the complaint, which is the document in which you present the factual basis for your claims, and which once filed begins the lawsuit. It is ultimately your responsibility to ensure that the facts in the case are correct.
This depends on the terms of the retainer agreement you entered into with your lawyer. These arrangements typically include contingency and modified contingency arrangements as well as payment of attorneys’ fees on an hourly basis. See our site’s page on attorneys’ fees for additional information.
In any of these retainer arrangements, your attorney will be entitled to deduct their fees from your settlement. In contingency and modified contingency arrangements, these fees will amount to a percentage of the award. Where you have agreed to pay your attorney on an hourly basis, you will owe your attorney the balance of fees billed.
The division of a settlement award between you and your lawyer should be spelled out in a written retainer agreement. To avoid any misunderstandings about what the written retainer says, always make sure you carefully read the provisions pertaining to attorneys’ fees. If you don’t understand what is written, make sure to ask your attorney to explain it to you before signing this document. See our site’s page on attorneys’ fees for additional information.
Any sum of money in a settlement allocated separately as payment of “attorneys’ fees” should be credited against the fees you owe your attorney. How that is done depends on the type of retainer agreement you have with your lawyer. See our site’s page on attorneys’ fees for additional information.
No. The “net” amount after you pay your attorney is gross “income” to you. Money received as a settlement of an employment-related lawsuit is usually designated in one of two ways; as lost wages, or as compensation for emotional distress resulting from the conduct of your former employer. Under the law, money attributed to either category is taxable. You need to discuss with your attorney how to structure the settlement and how the money will be allocated. See our site’s page on taxation for further information.
Your friend’s personal injury settlement predictably was tax free because the money he received was attributable to the pain and suffering he experienced as a result of a physical injury. In employment cases, most of the time, emotional injuries stem from non-physical acts taken by the employer or an employee against you. Money received on account of such suffering is taxable, although most likely not as wages, and thus not subject to Social Security taxes.
All damages received in lieu of past or present income are taxable as wages. See our site’s page on taxation for further information.
Virtually all contingency and modified contingency arrangements provide that your attorney receives his or her percentage from the gross settlement sum. Just like you, the money to your counsel is not net income. Your attorney or his/her law firm will have to pay taxes on the amount received in attorneys fees.
You need to consult an accountant or tax lawyer about this question. Most attorneys who represent plaintiffs in employment-related cases do not have the training to advise you about tax matters. You should be aware, however, thatany sizeable award can impact your income tax situation significantly.
It is usually a good idea to consult with a tax advisor before making the decision to settle. Your attorney may be able to negotiate how the money is allocated and the timing of payments made – but it is ultimately your pocketbook the IRS will go after. See our site’s page on taxation for further information.
Yes. Ultimately, it is your decision whether to settle your case. However, you did hire a lawyer to represent you. You need to discuss the offer with your attorney and listen with an open mind to his or her explanation of the risks and the cost/benefit of going forward versus accepting what’s on the table. Ask lots of questions. Once you understand more about your case and the way the law works you may find that your attorney, if he or she is pressuring you at all, is doing so in your best interest.
First, resist the temptation to assume your lawyer is selling you down the river by encouraging you to settle. Your attorney is almost always on your side. Even if you doubt the sincerity of your counsel to champion your cause, keep in mind that in most cases, your attorney stands to gain financially if you either continue the case (when you pay hourly) or if your offer increases (in a contingency case). So, there is no incentive to undercut the value of your case.
Second, speak candidly to your lawyer. Ask pointed questions about why the attorney does not want to continue if you refuse the current settlement proposal. Evaluate with your attorney how realistic your expectations are about settlement. Make sure your attorney explains what your case is worth. This will put some perspective on what you perceive as your attorney’s “ultimatum.”
Don’t forget to examine your own motives for turning down a settlement offer. Are you seeking a form of “justice” which is not likely to happen? Are you afraid of closure – don’t want to stop fighting with your employer? Are you seeking revenge, rather than making a smart business/life style decision? These questions can help you assess whether your attorney is making an unreasonable demand of you, or you are not seeing the case clearly, and the offer pending for what it is worth.
If you can’t agree with your attorney about accepting a settlement, before he or she applies to the court to withdraw, consider consulting with one or more other attorneys. You can get a second and third opinion about the prudence of accepting a current offer, which may help to change your mind about the proposed offer. If not, perhaps another attorney would be willing to take your case. It always looks better to the court and opposing counsel for you to switch counsel rather than have your current lawyer make a public motion to withdraw.
The decision whether to accept a settlement is always yours to make. A lawyer cannot compel you to reject a settlement offer. There are many reasons to settle a case for less than what your attorney thinks (best case scenario) it may be worth:
- You don’t want to fight any more.
- You want to avoid a deposition (statement given under oath) or testimony at trial.
- You think a further financial investment in your case won’t result in a better outcome.
- You want to move on with your life.
You should always consider what is best for you and your family – sometimes money isn’t the only thing that matters: resolution is.
Yes, if you want the money. Most if not all private employers will request that you keep the amount of the settlement confidential. Some employers will also require that you keep the facts surrounding the lawsuit and negotiations leading up to the settlement confidential. Public employers usually cannot require such a provision. Keep in mind when evaluating an offer of judgment that an entry of judgment in the court records is a public record.
You take the risk of being sued for breach of this provision of the settlement agreement. Some employers put a forfeiture or penalty provision in the agreement providing that you will have to pay back some or the entire settlement amount if you breach confidentiality. Almost all employers put in some type of penalty provision to ensure you don’t talk to anyone outside of a very limited group specifically exempt from confidentiality.
My proposed settlement agreement permits me to speak with my immediate family members without breaching the confidentiality provision but doesn’t include my live-in partner. If I can’t avoid discussing the terms of the settlement with my partner, will I have violated the agreement?
Technically, yes. To avoid this problem, you need to inform and/or remind your attorney of your living situation. Most employers will permit you to discuss your case and settlement with individuals you live with or other people in your life with whom you have an intimate relationship.
There is no formula to finding an attorney who fits this bill, but choosing one who can communicate well with you – by both listening and answering questions – should be at the top of your list. Deciding whether to settle your case can be challenging, frustrating and anxiety provoking. You should be able to process the pros and cons of any proposed settlement with your attorney in a manner which is both respectful of your feelings and impressions but also in which your attorney can disagree with you without your feeling betrayed. This can usually be accomplished when the relationship with your attorney is premised on trust. So when consulting or interviewing an attorney, look for someone who you believe you can rely upon to follow their advice.