Settling Employment Cases: Think Beyond Money

thinkstockphotos-512549722When you’re negotiating settlement of an employment action, you have much more to consider than just “how much money.” There are many nonmonetary remedies that can—either alone or combined with money—bring the parties to agreement. And how money is paid out can also be a good bargaining chip.

Here are some of the most commonly agreed-on terms of a nonmonetary nature in settling employment cases:

  • The employer provides a positive or neutral reference;
  • The employer agrees to purge or limit access to unfavorable information from the employee’s personnel file (e.g., disciplinary actions);
  • The employer agrees to pay or reimburse Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) (29 USC §§1161–1169) premiums for continuation health insurance;
  • The employer provides a letter of recommendation for the employee (the plaintiff should also seek agreement as to whom any inquiries with respect to plaintiff’s prior employment will be directed and that responses to inquiries will be consistent with the letters of recommendation);
  • The employer reinstates plaintiff’s employment to a comparable or the same position previously held by the employee, if the employee was discharged; and
  • The employer issues a formal apology, which can often make a significant difference to the employee and is of no financial cost to the employer.

If the case is settling for substantial monetary damages, consider whether to make it a structured settlement, i.e., an agreement to pay some portion of the claimed damages in the future, rather than the present. This type of settlement usually consists of an initial payment to the plaintiff on settlement of the action that covers at least medical expenses, attorney fees, and costs. The settlement agreement then provides for payments continuing over an agreed-on period of time (e.g., until the plaintiff reaches age 65), or contingent on a predetermined factor (e.g., plaintiff’s continued survival).

A plaintiff may benefit from a structured settlement because it reduces tax consequences by spreading out payments over several years. It also relieves the plaintiff from the burden of investing lump-sum proceeds to assure a reasonable rate of growth and rate of return. The plaintiff may bargain for a condition in the structured settlement that payments continue to be made to the plaintiff’s spouse or heirs on the plaintiff’s death.

A structured settlement is often acceptable to defendants because smaller sums of money are expended. The amount held back for future payments can grow to a significantly larger sum than the initial investment. Structured settlements are frequently funded by purchasing an annuity to cover future payments, at a cost-saving to the defendant compared with a present lump-sum payment. The terms of the structured settlement may terminate the defendant’s responsibility for making periodic payments on the death of the plaintiff or some other predesignated event.

Get practical advice on settling wrongful termination actions in CEB’s Wrongful Employment Termination Practice: Discrimination, Harassment, and Retaliation, chap 12. For settlement of cases involving leave laws, check out CEB’s Employee Leave Laws: Compliance and Litigation, chap 8.

Other CEBblog™ posts you may find useful:

© The Regents of the University of California, 2017. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

One Response

  1. All great ideas and I would add a couple:
    1). Re-characterization of the separation from a termination to a resignation. In NH be sure to indicate that the separation was not voluntary, but rather, a resignation “in lieu of termination” to avoid harm to reputation while simultaneously increasing the odds of getting unemployment.
    The value of not having to tell a potential future employer you were fired? Priceless.
    2). Also, where the claims support it, be sure to designate consideration between wage and non wage payments. In large settlements, a well justified attribution to a physical touching or to emotional distress, along with a designation of attorney fees can make a big difference in the amount of money that makes it to your client’s pocket. Check with your tax folks of course, but NOT doing this could be remiss.

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