First Steps Post-Signing
Once both parties have signed the Settlement Agreement, several initial steps must be taken. The employer should notify its workers’ compensation carrier that the case has settled. In certain circumstances, it may be that settlement is conditioned upon approval by the carrier. In other cases, the carrier must approve the settlement (based upon its forms, which are usually filed with the Court so as to provide evidence of the carrier’s approval of the underlying settlement). Even if this process is not necessary, the carrier must still be notified that the case has settled.
Many times, the insurance company will send out an Affidavit with a proposed Order appointing a Board Commissioner to preside over the settlement process. In the event a Judge is not available, a Commissioner will be assigned the case to preside over settlement of the case. The Commissioner will then issue an Order setting the case for a conference. This process can take from a number of days, to a number of months, depending on the circumstances .
In the event the case is being handled via the voluntary petition process (i.e., where three (3) copies of the Petition are sent to the Workers’ Compensation Division of our Superior Court), the next step may be even more daunting. In the event both party’s attorneys are able to agree on the settlement amount, they fill out a Compromise and Release Agreement and then forward the Agreement to the Judge. The Judge reviews the Agreement and sends a Memo back to the attorneys indicating the offer of judgment. Then, the attorneys of record fill out an application for court approval of the settlement and provide the carrier/TPA with an opportunity to object to the settlement. In this case, the process can take three (3) months or more.
Once the application is approved, the injured employee may then receive a Check usually within two weeks or so. This timeframe may be accelerated, depending on the terms of the settlement.
Meaning of Settlement Terms
Understanding the terms of a settlement agreement is crucial regardless of whether a plaintiff, defendant, or other interested party.
Failure to understand the specific terms that are agreed to in a settlement can lead to problems down the line. It is very important to make sure that you understand the settlement agreement and consent judgment that are signed. Whether you are the plaintiff or the defendant, the provisions contained in the settlement agreement can impact you, even if you are uninvolved with the lawsuit. This is especially true in cases where there are multiple defendants.
A very common issue that arises in matters where there are multiple defendants, is a situation where one of the defendants settles with the plaintiff for an amount of money that is significantly less than the amounts that were alleged in the Complaint. The remaining defendant may be concerned about the amount of money that they would need to pay in order to settle the matter. They may have a concern that since the settling defendant only had to pay a small fraction of the judgment, that they are responsible to pay the full amount alleged in the Complaint.
This concern is not supported by law. Reserving the right for contribution on a future date only applies in situations where the settlement agreement allows this. Otherwise, you could be left paying the full amount of the judgment, as set out in the Complaint, and then having the settling defendant hold you liable for their contribution towards the settlement.
It is also important to understand the indemnity agreements that are executed by defendants. The language and the form of the indemnity agreement are also quite important. In fact, purchasing insurance for a business is based on indemnity agreements. If an indemnity agreement has an exception in it for a particular defendant, that may not be a problem at the present time, but it will have a long term effect as it does not protect the defendant in subsequent lawsuits. It may be best to request another indemnity agreement that is more broad.
The terms of the settlement agreement are very important and should be understood before they become binding.
Methods of Payment
When the Settlement Agreement is signed, the case is over, however, the payment of the settlement sums or other obligations by either party should not be delayed. Payment procedures will vary in each case but the following are the most commonly used in Maryland Circuit Courts:
When the parties use a Consent Judgment, once the settlement agreement is signed, the Clerk includes language that allows the Plaintiff to collect the Judgment without further notice if the Defendant defaults. When a Consent Order is used, the agreement is stamped on the Order, just as if the case was litigated. Even if the consent Order is a Termination of Parental Rights, the Clerk may take action to collect the amount still owed to the Plaintiff without further notice. Both parties may agree that Plaintiff will collect the Judgment outside of court. A Warrant in Debt should be prepared and the appropriate fees paid to start the process. This simply helps to clarify procedures. The Warrant in Debt is issued by the Clerk and may include a Statement of Claim wherein the Plaintiff can explain to the Court why the Defendant owes the Plaintiff money. The Warrant in Debt is forwarded to the Sheriff who serves the Defendant and collects the money. If the parties agree that Plaintiff will collect the judgment outside of Court, with or without a Warrant in Debt, and the Defendant still refuses to pay, the Plaintiff can request Interrogatories and a Court Appearance. Interrogatories are like Questions you ask someone. These questions help determine where money and other assets are to collect from. If the Defendant lies during their Interrogatory and the Plaintiff does an asset check of bank accounts, savings, stocks, etc., and has verified the money the Defendant said he had is NOT in fact in existence, the Plaintiff can request that he find him or her in contempt of Court. In these cases the Plaintiff can ask the Court to send the Defendant to jail until the Defendant cooperates with the Court and the Plaintiff. The Court does not have to agree with the Plaintiff. The Judge may only order the Defendant to give the money owed, or the Judge may allow the Defendant more time to pay. If the Judge does not order the Defendant to pay, the Plaintiff may Appeal the decision and ask the Appellate Court to order the Defendant to pay the judgment. In such cases, the Defendant is ordered by the Court to pay the Plaintiff the amount of the judgment in a specific amount of time if the Appeal fails.
Releases and Other Obligations
In the settlement of claims between the company and its employee, the employee will be asked to release the company, and the company will request release from the employee. Both the employee and the company, while the settlement agreement is being prepared, should carefully consider the release of claims and mutual release of obligation.
The release of claims is intended to bar any future litigation between the parties and their agents. It is essentially a waiver of all claims, known or unknown, and is very important to require of a claimant in any settlement. The release of claims will provide that the employer and its agents are released from any claims asserted or that could have been asserted arising out of the employment or relationship between the parties. It is important that the release of claims be broad enough to cover any future claims that might be asserted by someone other than the employee, such as a government agency (which is typical and covers OSHA claims and collective bargaining board claims, for example), and also cover any claims by the employee. The release of claims typically is limited to those legal claims which might be asserted against the employer, such as interference with contract, defamation, fraud, retaliation and natural justice claims. Also the release of claims typically excludes the employee’s right to file complaints alleging discrimination against the employer under the Federal Civil Rights Act or any state anti-discrimination law. In those last two instances, the Federal Civil Rights Act makes it unlawful for an employer to discriminate against any applicant regarding hiring, tenure, compensation, privileges or other conditions or terms of employment because of race, color, religion, sex, age, national origin, or handicap or genetic information status, and the employee has the right to assert his or her discrimination claim against the employer in court. For the state claims, if your state is a "right to work" state, workers have the right to choose employment and cannot be discharged for refusing to join or contribute to a union, and if an employee in a right to work state is discharged for choosing not to join or contribute to a union, the employee has the right to sue his or her employer.
In addition to the release of claims, the fulfillment of obligations with regard to non-disclosure and confidentiality is required after signing the release of claims with regard to the settlement agreement. And if there were any restructuring payments made in the settlement agreement of severance payments, there is a fulfillment of the obligation to end the payment, and with regard to any stock options or the payment of incentives. All of these, if any, should be spelled out in the release of the claims. Therefore, while the settlement agreements may often times be one page and just discussed, the release and fulfillment of obligations is very important and very comprehensive. In addition, there may also be agreements made between the employer and employee that are not put in writing in the settlement agreement. Sometimes employers and employees agree to additional time away from the workplace, additional severance payments, payment in lieu of notice, release from non-competition agreements, nondisclosure agreements and anything else that would have had to been done after termination and legal settlement agreement.
Enforcement and Sanctions
Unless a provision in the settlement agreement provides otherwise (for example, an agreement reached to resolve an EEOC charge), the board is not required to enforce an administrative settlement agreement. However, under the Minnesota Government Data Practices Act, Minnesota Statutes Section 13.03, subdivision 1, "All government data collected, created, maintained or used by state governmental units in any way, including by stored computer data or data in any other form must be properly managed. Government data must be managed in such a way that it is accessible in an economical, efficient and timely fashion." While filing a lawsuit is an option, a rejected complainant pursuing the matter in court will be required to prove that the agency’s decision was clearly erroneous. Minn. Stat. § 15.995 subd. 3. Accordingly, if a respondent fails to comply with a settlement agreement, the complainant may prove district court jurisdiction under Minn. Stat. § 363A . 33 (2014).
Further, when the respondent fails to fulfill the terms of the settlement agreement and the Department of Human Rights does not attempt to enforce the settlement agreement, the respondent may face negative consequences should they later apply for a license or renewal of a license in Minnesota for which the Department provides licensure review. The licensing statute for the Department of Human Rights, Minnesota Statutes Section 363A.73, subdivision 3, states that the Department may consider: "orders, determinations, settlements, conciliation agreements, and other actions, even if obtained through a voluntary process, issued or entered pursuant to statute or ordinance, by the Department of Human Rights or any other federal, state, or local governmental unit governing the applicant’s conduct at issue." Given the language of this statute, the complainant will have a legal vehicle to prevent future violations should the Department take no action.
Legal Consequences and Advice
A signed settlement agreement is not self-executing and often requires further actions/events in order to complete the dispute resolution process. What actions need to be taken are dependent on the terms of the agreement. For example, the paying party may be required to fund a settlement note, start making installment payments, or pay a lump sum. The non-paying party may be paid a lump sum or a series of installment payments, usually with interest. The parties may each dismiss their respective motions, cases, or other pleadings. One or both parties may need to do something else. The possibilities are endless.
What happens after the settlement agreement is signed depends on the agreement and the cooperation of the parties. Where one or both parties believed that the other party would start fulfilling their obligations under the settlement agreement and only one or neither party has done so, then it may be necessary to file a motion to enforce the settlement agreement. In fact, this may even be required sooner rather than later because a brief delay in payments/delivery of goods may be contemplated and agreed to under the settlement agreement. Without filing a motion to enforce the settlement agreement, a party may find themselves in default and without the gist of their original settlement agreement. Thus, the party may have to start over.
If a party fails to follow the terms of the settlement agreement, then the aggrieved party should send a "notice of default" letter making a request to honor the original terms. A simple "I’ll seize your house" threat will generally initiate the default inquiry. If the party fails to comply with the notice of default letter, then the aggrieved party may need to file a motion to enforce the settlement agreement, including an award of attorney fees and costs.
Sometimes the parties to a settlement agreement require certain acts of performance within a limited time period from a third party or governmental agency. Unless that performance is completed, then the settlement agreement can remain in limbo. The best practice is to list all contingencies to performance in settlement agreements, whether those contingencies concern the parties to the settlement agreement or third parties. For example, a party may require consent from a third party to a contract, commercial lease, or security interest. The settlement parties should keep track of the progress of those contingencies to performance with a contingency list with updated statuses until the contingencies to performance are satisfied.
Settlement agreements are not the end the dispute resolution process. The signatures on those agreements are the starting point to finish the task within the time periods contemplated by the agreement. Complete compliance by both parties with those time periods should be the ultimate goal. If one or both parties fail to comply, then the proper action to enforce the settlement agreement must be filed.
Typical Post-Settlement Issues
Typically the difficulties that arise after a settlement agreement has been signed are not due to the substance of the settlement, but rather to the failure of one of the parties to comply with the terms of the settlement. Delays in the payment of money, or failure to procure an insurance policy, or failure to provide the indemnification required by the Settlement Agreement and Release.
If the defendant fails to fully execute the Settlement Agreement, such as by signing the release, or fails to pay the full amount of the settlement or obtain the insurance policy, or otherwise fails to comply with the terms of the settlement, the plaintiff may seek to enforce the settlement by application to the court. For example, if the defendant fails to provide an appropriate release of claims, the plaintiff may apply to the court for appropriate court orders requiring the defendant to comply. If the defendant fails to pay the insurance premium, the plaintiff may not be able to sue the insurer to establish coverage during the period of the extension if there is no legal obligation to do so. On the other hand, if the plaintiff fails to sign a release, or fails to appear for a medical examination if one is a condition of the settlement, or fails to cooperate with the defendant in making a claim on an insurance policy, then the defendant can seek to enforce the settlement by application to the court. In such cases it is a good idea for the defendant to serve a notice to comply with the settlement agreement before applying to the court. There may be cost and time implications, in the sense that if the plaintiff fails to comply in some way, a motion may be necessary seeking an order granting supplemental relief.
Subsequent Agreements and Resolutions
When the parties to a lawsuit enter into a settlement agreement to amicably resolve a dispute, the agreement frequently does not signal the end of the matter. Oftentimes, there remain questions as to the rights and responsibilities of the parties post-settlement.
Who will be required to prepare the documents for signatures to conclude the settlement? If the settlement agreement spells out who is responsible for preparing the documents, the parties need to follow those instructions. If the settlement agreement does not specify who is to prepare the documents, issues can arise. The party for whom it is most convenient to draft the documents usually proceeds. However, that party will periodically seek input from the other party to make sure the drafts are consistent with the settlement agreement.
Will a court need to approve the settlement? Generally, the parties attempt to craft an agreement in which they have controlled the outcome and no court approval is required. There are exceptions to this, of course. For example, if the parties to a lawsuit are minors or insane persons, a court will have to approve the settlement . In some cases involving class actions or claims to be submitted to administrative agencies, a court or agency approval is necessary.
What follow-up items will need to be completed? Not infrequently, a settlement agreement will outline steps that should be taken after signing. Beyond execution of the documents, the parties could be called upon to, among other things, prepare a dismissal order, file notices of the settlement, prepare and present motions to approve the settlement to a court, and draft and send notices to the class members or others affected by the resolution.
Which party will get the money from the settlement and when? The settlement agreement should spell out when payments are due and to whom.
How will the parties treat the settlement for tax purposes? Does the settlement require one party to pay taxes while the other is not responsible for taxes? Can the parties allocate the settlement proceeds among different provisions in the agreement? Ultimately, the parties (and their lawyers) must determine how all the above affect the tax treatment and these questions should be addressed during the negotiation of the settlement agreement, with the final determinations made before executing the agreement.