Free settlement agreement template

How to fill it in

The choices in this form matter more than the blanks. Work through them in order and decide each one deliberately.

• The dispute: describe what happened, when, and what each side claims, plus the case name and number if a suit is filed. This defines what the release covers.
• Payment: set the amount, whether it is a lump sum or installments, the deadline, and the method.
• Release scope: choose one-way or mutual, then choose whether it is limited to this dispute or a general release of all claims between the parties.
• Unknown claims: keep the waiver, and read it, because it is the clause that gives up claims you have not discovered yet.
• Dismissal: if a case is filed, set the deadline to dismiss and decide whether to ask the court to retain jurisdiction.
• Confidentiality: choose confidential or not, and remember the protected-rights carve-out stays either way.
• Taxes: allocate the payment if the claims are of different kinds, since the allocation affects how it is taxed.
• Sign: both parties sign and date, and each keeps a copy.

General release or limited release: pick deliberately

This is the single most consequential choice in the document. A limited release covers only the claims arising from the dispute you describe, so anything unrelated survives. A general release covers every claim between the parties up to the effective date, known and unknown, related or not. The paying side almost always wants a general release, because it buys real finality and stops the same facts coming back under a new legal theory. The receiving side should think hard before agreeing, because a general release can quietly wipe out a claim that has nothing to do with the dispute being settled. The honest advice: match the release to what is actually being paid for. If the payment resolves one invoice dispute, a release limited to that dispute is the fair trade. If the payment is meant to end the entire relationship and every possible claim in it, a general release is appropriate, and the price should reflect that.

Unknown claims and the California Civil Code 1542 waiver

Here is the trap most free templates never explain. In some states, a general release does not automatically reach claims you did not know about. California says so by statute. Civil Code section 1542, as amended effective January 2019, provides that a general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in their favor at the time of executing the release and that, if known, would have materially affected their settlement with the debtor or released party. Because of that, California settlement agreements quote the statute and add an express waiver of it, which is what this template does. Two practical points. If you are the releasing party, that waiver is not boilerplate; it is you agreeing that the release covers claims you have not discovered yet, which is exactly what the statute would otherwise protect. If you are the paying party and you skip it, you may not be buying the finality you think you paid for. Montana has a closely parallel statute, and a small number of other states have similar provisions, so check the law of whichever state governs your agreement rather than assuming California is the only one.

No admission of liability, and what Rule 408 actually does

Nearly every settlement agreement says the parties are not admitting fault, and this one does too. The clause exists because settling is a business decision, not a confession, and no one wants a payment treated as proof they were wrong. Sitting behind it is Federal Rule of Evidence 408, which keeps settlement offers and statements made during compromise negotiations out of evidence when they are offered to prove or disprove the validity or amount of a disputed claim, or to impeach by a prior inconsistent statement. Two things about Rule 408 get misreported constantly, so be clear on both. First, it is a rule of admissibility, not a confidentiality rule. It does not stop the other side from learning something, and information that was otherwise discoverable does not become protected just because it came up in settlement talks. If you want secrecy, you need the confidentiality clause, not Rule 408. Second, the protection is narrow: evidence from negotiations can still come in for another purpose, such as showing a witness's bias or negating a claim of undue delay. Rule 408 is federal; state rules vary.

Employment settlements need more than this template

If you are settling a claim with an employee, stop and get advice before using a general form, because federal law adds requirements that a general settlement agreement does not contain. Under the Older Workers Benefit Protection Act, a waiver of age-discrimination claims by a worker 40 or older is only valid if it meets specific conditions: it must be written to be understood, refer specifically to rights under the Age Discrimination in Employment Act, not waive future claims, give consideration beyond what the employee is already owed, advise the employee in writing to consult an attorney, allow at least 21 days to consider it, or 45 days if it is part of a group exit-incentive or termination program, and give 7 days after signing to revoke. The revocation period cannot be shortened or waived by either side, and the agreement is not effective until it expires. Group programs also require written disclosure of the job titles and ages of who was and was not selected. If a waiver is challenged, the employer carries the burden of proving it was knowing and voluntary. Note the boundary: these rules govern age claims specifically, not every employment claim, and other claims have their own standards.

• At least 21 days to consider, or 45 days for a group or exit-incentive program.
• 7 days to revoke after signing, and that period cannot be waived.
• Consideration on top of anything the employee is already entitled to.
• Written advice to consult an attorney, and a specific reference to ADEA rights.
• No waiver of claims arising after the date of signing.

What cannot be released, no matter what the agreement says

Some rights survive a release even if the document appears to sign them away, and a clause that tries to take them creates risk rather than protection. An employee cannot be stopped from filing a charge with the Equal Employment Opportunity Commission or from testifying, assisting, or participating in an agency investigation or proceeding; provisions purporting to bar that are unenforceable. What can be waived is the right to personal monetary recovery from that process, which is the standard drafting answer: carve out the right to file and participate, waive individual monetary relief. Because anti-charge terms are unenforceable, an employee also cannot be made to hand back settlement money before filing a charge. On the securities side, Securities and Exchange Commission rules prohibit any action that impedes someone from communicating directly with SEC staff about a possible violation, including enforcing or threatening to enforce a confidentiality agreement, which is why a whistleblower carve-out belongs in the document. This template includes those carve-outs in its protected-rights section.

Confidentiality, and the harassment-settlement rules that changed it

Confidentiality is optional, and worth thinking about rather than checking by reflex. Two federal developments matter. The Speak Out Act, passed in 2022, makes nondisclosure and non-disparagement clauses unenforceable in sexual assault and sexual harassment disputes when the clause was agreed to before the dispute arose. Read that scope carefully, because it is widely misstated: the Act targets pre-dispute clauses, such as one buried in an onboarding agreement, and does not by itself void a confidentiality term in a settlement signed after the dispute arose. Separately, the tax code creates a real cost for keeping such a settlement quiet. Section 162(q), added by the 2017 tax law, denies any business deduction for a settlement or payment related to sexual harassment or sexual abuse if it is subject to a nondisclosure agreement, and for the related attorney fees. So a payer who insists on confidentiality in that kind of case gives up the deduction on the entire settlement. The scope of the attorney-fee piece has been debated, so get tax advice. Several states also restrict settlement nondisclosure terms more aggressively than federal law does, including after a dispute has arisen, so check your state before relying on a confidentiality clause here.

Are settlement payments taxable?

Often, yes, and the answer turns on what the money is actually for. The Internal Revenue Service puts it plainly in its guidance on settlement taxability: whether you must include settlement proceeds in income depends on all the facts and circumstances. The general rules are these. Damages received for personal physical injuries or physical sickness are excluded from income under section 104(a)(2), subject to an adjustment if you previously deducted related medical expenses. Emotional distress on its own is not treated as a physical injury, so those damages are taxable unless the distress is attributable to a physical injury or sickness, with an offset for related medical costs. Lost wages in an employment case are taxable wages, and the payer generally has to withhold employment taxes on them. Punitive damages are taxable even when they come in a settlement for physical injuries. Interest on a settlement is taxable as interest income. Because the categories are taxed differently, the allocation in your agreement matters, and the IRS will generally respect an allocation that is consistent with the substance of the claims being settled. That is a drafting opportunity, not a licence to mislabel. Talk to a tax adviser before signing anything sizeable.

How a settlement is enforced if someone breaks it

This is the part people assume works automatically, and it does not. If a lawsuit is dismissed and the settlement falls apart afterward, the default is that you sue on the settlement agreement itself, as a new breach-of-contract case. The Supreme Court settled this in Kokkonen v. Guardian Life Insurance in 1994: the parties dismissed their case with a stipulation that neither referred to the settlement nor reserved any authority over it, and when performance broke down the federal court had no jurisdiction to enforce the deal. The Court also gave the fix. With the parties' consent, the court can either write the settlement terms into the dismissal order or expressly retain jurisdiction over the agreement, and then enforcement is a motion in the case you already have rather than a lawsuit from scratch. If a case has been filed, ask for one of those at the time of dismissal. It costs nothing and saves a great deal if the other side stops paying.

Signing it

Both parties sign and date, and each keeps a copy. An electronic signature is valid on a settlement agreement under the federal ESIGN Act, which is why signing online works well here, particularly when the parties are not on speaking terms and a scheduled signing meeting is the last thing anyone wants. Two carve-outs are worth knowing, because they are specific to this document type. ESIGN does not cover court orders, notices, and official court documents, so the settlement agreement itself can be e-signed while the dismissal papers filed with the court follow that court's own filing rules. ESIGN also carves out family-law matters including divorce, so a marital settlement agreement may not be covered, and you should check the rules of the court handling it. Notarization is generally not required for a settlement agreement to be binding, though parties sometimes notarize for evidentiary comfort, and a settlement involving real property or one that has to be filed with a court may have its own requirements.

Common mistakes to avoid

Settlement disputes almost always trace back to the same few gaps.

• Describing the dispute vaguely, so no one can tell later what the release actually covered.
• Agreeing to a general release when only one narrow claim is being paid for.
• Signing the unknown-claims waiver without reading it, then discovering a claim it already gave away.
• Using a general template for an employment settlement with a worker 40 or older and missing the 21, 45, and 7-day requirements, which can make the age-claim waiver invalid.
• Writing a confidentiality clause that tries to block agency charges or whistleblower reports, which is unenforceable and can invite scrutiny.
• Dismissing the case without asking the court to retain jurisdiction, then needing a whole new lawsuit to collect.
• Ignoring the tax allocation, or labelling the payment in a way the underlying claims do not support.