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Does Your Settlement Agreement Insure "Peace?"


The Employment and Labor Law Alert

February 13, 2004

Anyone with knowledge of agreements settling claims brought by an employee against his or her employer knows that the agreement should require the employee to release or waive any and all claims that were or could have been brought against the employer. Of course, settlement of a dispute via such an agreement does not necessarily always end the problems between the parties, especially when the parties remain in an employment relationship. For example, claims of subsequent “retaliation” by the employer against the employee are common even after resolution of a prior claim of discrimination or harassment. In the event of subsequent litigation, the settlement agreement between the parties may not be adequate to protect the “releasee” from the airing of all of the allegations of the previously settled matter.

The New Jersey Superior Court, Appellate Division, has in fact specifically ruled that without a release that expressly precludes information relative to the settled case from discovery in a subsequent action, the existence of the first case and all of its details are in fact appropriate areas for discovery in later litigation. In Isetts v. Borough of Roseland, a police officer filed suit against his employer, the Borough of Roseland, alleging violations of New Jersey’s Conscientious Employee Protection Act. 364 N.J. Super. 247 (App. Div. 2003). The parties resolved the matter and entered into a settlement agreement, under which Isetts received a payment of $650,000. Approximately one year after executing the settlement agreement, Isetts commenced a second action against the Borough of Roseland, alleging that the Borough and individual defendants had retaliated against him on account of the initial suit and the settlement thereof. When the defendants applied for a protective order to bar discovery of matters occurring prior to the settlement, the Law Division agreed that the release language in the settlement agreement precluded discovery of events preceding the settlement. In restricting discovery to events occurring after the execution of the settlement agreement, and barring admission of evidence of any events prior to the execution of the agreement, the Court specifically stated: “the defendants now shouldn’t be sucked back into a morass of discovery that’s been waived. This quite frankly in this Court’s opinion is one purpose of settlement?”

The Appellate Division, however, disagreed. In reviewing the discoverability of information relative to Isett’s prior claims, for use his action based on subsequent claims (that were not waived by virtue of the settlement agreement), the Appellate Division parsed out the language of the settlement agreement. It determined that plaintiff had in fact released “any and all claims, rights, actions” he had or may have had against the defendants. But it also found that the context of the release language supported a conclusion that the “rights” Isetts had waived did not include the “right” to obtain “discovery which would otherwise attach to a later unreleased claim.” Thus, the Appellate Division offered this bright-line standard: “a general release which does not expressly include a waiver of discovery cannot serve to limit the scope of discovery in the future pursuit of an unreleased claim.” Moreover, the Court found that the claims of retaliation form a legitimate basis for discovery of the pre-settlement relationship between the parties and the allegations of the prior litigation.

In short, Isetts mandates that defendants who wish to actually ensure “peace” (as the Borough of Roseland thought it had) relative to settled claims must demand even more comprehensive language in settlement agreements. Specifically, in order to preclude information about resolved matters from appearing as fact discovery, settlement agreements must clearly and expressly prohibit the future use of any and all information about the settled claims. This holding warrants review, and perhaps revision, of the standard release language in most settlement agreements in order to ensure that the bargained-for “peace” is actually achieved.