Settlement Agreement and Release Drafter

List what was agreed, and check that both sides would describe it the same way. Gather the emails, letters or mediation notes where the deal was struck, and settle open points now, not in the draft.

If you're owed money and nothing has been agreed yet, start with a demand letter instead.

Give each payment an exact amount, a calendar date, a method and a payee. Words like "promptly" invite a second dispute. For installments, say what a missed payment triggers: written notice, a short window to pay, such as 10 days, then the full balance due at once.

When you're being paid, make your release take effect only once the money arrives, so you never trade a claim for a promise. To cover enforcement costs, say whoever breaks the agreement pays the other side's reasonable attorney fees.

Say what each payment is for, because the description can affect the tax. The IRS's guidance on settlements¹ says the key question is what a payment was intended to replace, and when the agreement is silent, it looks to the payer's intent. Compensation for a physical injury is generally tax-free, and severance pay generally counts as wages for employment taxes. Have an accountant check the wording.

Decide first whether the release runs both ways. A mutual release ends claims in both directions. A one-way release protects only the side that pays, leaving the side being paid exposed to any claims the payer still holds.

Describe the dispute, then release the claims arising from it, under any legal theory, up to the signing date. Carve out the agreement itself, so either side can still enforce it.

California's Civil Code section 1542² protects claims the releasing side "does not know or suspect to exist" when signing. If knowing about them would have materially affected the settlement, a general release doesn't cover them. Where California law could apply and you mean to release unknown claims too, quote section 1542 in full and waive it expressly.

For a pending case, say who files the dismissal, when, and whether it is with prejudice, meaning the claims can't be refiled. In federal court, Rule 41 of the Federal Rules of Civil Procedure³ makes a voluntary dismissal without prejudice unless the notice or stipulation says otherwise.

Keep a way to enforce the deal. In Kokkonen v. Guardian Life⁴ (1994), the Supreme Court held that a federal judge's "mere awareness and approval" of a settlement doesn't make it part of the dismissal order. For the federal court to enforce it later, the order must retain jurisdiction over the agreement or include its terms. Otherwise, enforcing it is generally a matter for state court.

Time the dismissal to the money. If payments run over months, the side being paid can ask to dismiss only after the last one. State courts have their own rules on dismissals and on enforcing settlements, so check yours.

Some rights can't be signed away, and some releases hold only if they follow set rules. When a worker aged 40 or over gives up age discrimination claims, the Older Workers Benefit Protection Act⁵ sets minimum terms. The agreement must be written so they can understand it and must name the Age Discrimination in Employment Act. It must also advise them in writing to see a lawyer and give them something beyond what they're already owed.

Where no age discrimination charge or lawsuit has been filed, they get at least 21 days to consider it (45 in a group layoff or exit incentive program). They also get 7 days to revoke after signing. To settle a charge or lawsuit already filed, those fixed periods give way to "a reasonable period of time" to consider the agreement.

Every employee keeps some rights, whatever they sign. The EEOC says no agreement can stop an employee from filing a charge⁶ or taking part in its investigations. It also tells employees to check that a release doesn't take unemployment or workers' compensation benefits. The same goes for claims under the Fair Labor Standards Act, the federal minimum wage and overtime law.

Parting ways with an employee? The employee termination checklist template covers final pay and the steps around the agreement.

In injury cases, check whether Medicare paid for treatment. Under the Medicare Secondary Payer law⁷, Medicare must be repaid for related care it covered once a settlement is paid, whether or not anyone admits fault. For a child's claim, ask a lawyer whether a court must approve the settlement.

Store the signed copy with proof of every payment. If a payment is missed, give notice exactly as the agreement says. A breach of contract notice letter helps you get the deadlines right.

To skip the blank page, the tool at the top of this page drafts the agreement from your agreed terms and lists every gap to confirm.