Draft Settlement Agreement

---
name: draft-settlement-agreement
task_id: employment-labor/draft-settlement-agreement
description: Guides the drafter in producing an execution-ready employment discrimination settlement agreement with compliant tax allocation, statutory waiver provisions where applicable, and a cover memo addressing key drafting decisions.
activates_for: [planner, solver, checker]
---

# Skill: Draft Settlement Agreement and General Release for Employment Discrimination Matter

## 1. Subject-matter triage

- Identify whether the matter is a single-claim employment dispute, a multi-claim discrimination/retaliation matter, or a settlement resolving one or more agency charges, lawsuits, or internal complaints.
- Confirm whether any age-discrimination claim is being released, because that triggers special waiver formalities under the Older Workers Benefit Protection Act, 29 U.S.C. § 626(f), and may affect timing and acknowledgment language.
- Confirm whether the settlement is resolving a pending proceeding, a threatened claim, or both, because the release scope, dismissal language, and agency carve-outs should track the actual posture of the dispute.
- Determine whether payment is lump sum or installment-based before drafting payment default, cure, and acceleration mechanics.

## 2. Failure modes the skill is correcting

- Drafter includes age-discrimination waiver language without satisfying the required waiver elements, including clear written language, consideration, advice-to-consult-counsel language, and any required consideration and revocation periods under 29 U.S.C. § 626(f).
- Drafter releases employment claims in overly broad terms but fails to preserve non-waivable government-agency filing or cooperation rights, creating enforceability and labor-law risk.
- Drafter allocates settlement proceeds imprecisely, leaving wage withholding, information reporting, and characterization issues unresolved under the Internal Revenue Code and related reporting rules.
- Drafter omits a tax indemnity or payroll-cooperation clause, leaving the employer exposed if the allocation is challenged or if taxes must be remitted on amounts treated as wages.
- Drafter fails to include enforcement, default, and acceleration provisions when payment is deferred, making the remedy structure incomplete.
- Drafter includes confidentiality or non-disparagement language without a protected-activity savings clause, creating risk under the National Labor Relations Act and related labor-law constraints.
- Drafter drafts only a term sheet-style summary instead of an execution-ready agreement with operative releases, representations, consideration, and signatures.
- Drafter’s cover memo fails to flag open drafting judgments, unresolved factual assumptions, or any deviation from the settlement terms being implemented.

## 3. Legal frameworks / domain conventions that apply

- General release structure: a settlement agreement should use recitals, consideration, release, covenant not to sue or limited filing carve-outs, confidentiality/non-disparagement where permitted, tax provisions, no-admission language, enforcement provisions, and signature blocks.
- Age-discrimination waiver requirements: if applicable, draft to the requirements of the OWBPA, 29 U.S.C. § 626(f), and any analogous state law requirements; state the waiver clearly and separately, give the employee the statutorily required review and revocation periods, and ensure the consideration is more than what the employee is otherwise entitled to receive.
- Title VII / retaliation / similar employment claims: release language should be broad enough to extinguish known and unknown claims arising from the employment relationship, but must be limited by non-waivable rights and any preserved agency cooperation rights.
- Tax treatment: classify settlement payments by intended tax treatment, typically separating wages from non-wage damages and fees, and include explicit wage withholding and Form W-2 / Form 1099 designations as appropriate under the Internal Revenue Code, 26 U.S.C. §§ 61, 3401, 3402, 6041, and related guidance.
- Characterization risk allocation: the agreement should state that the parties’ allocation controls as between them to the extent permitted, while recognizing that the taxing authorities are not bound by private labels.
- Tax indemnification: include an indemnity or cooperation provision allocating responsibility if any payment is recharacterized or if additional payroll taxes, penalties, or interest arise from the employee’s conduct or representations.
- Confidentiality and non-disparagement: draft narrowly, include customary exclusions for disclosures required by law, and preserve rights protected by the National Labor Relations Act, 29 U.S.C. § 157, and any applicable agency-reporting rules.
- No-admission and enforcement provisions: settlement agreements customarily disclaim liability, permit injunctive or contract remedies for breach, and specify venue, governing law, and dispute-resolution mechanics.
- Agency carve-outs: preserve the right to file, participate in, or cooperate with governmental investigations or proceedings to the extent protected by law, while waiving the right to personal monetary recovery where lawful.
- If the matter arose from mediation or a term sheet, the final agreement should implement the agreed business terms faithfully and any open point should be highlighted for partner direction before circulation.

## 4. Analytical scaffolds

- Start from the dispute posture: identify the claims being settled, the released parties, the forum posture, and whether dismissal or stipulation language is needed.
- Build the release in layers: release of claims, covenant not to sue, waiver of unknown claims if permitted, agency carve-outs, and express reservations for rights that cannot be waived.
- If age claims are included, check the OWBPA elements as a separate drafting pass and confirm the timing mechanics are internally consistent with the execution package.
- Draft tax allocations from the nature of the claims and intended reporting position; make the allocation internally consistent across the payment clause, tax clause, and any exhibit or schedule.
- If payment is deferred, specify due dates, method, payee instructions, consequences of late payment, cure period if any, and whether default accelerates the balance.
- Test confidentiality and non-disparagement against labor-law limits and insert a savings clause that preserves legally protected communications.
- Compare the final agreement against the source settlement terms and flag any ambiguity, missing issue, or business assumption in the partner memo.
- Treat every legal conclusion as authority-driven; cite the controlling statute, regulation, rule, or leading doctrine that supports the drafting choice in the memo or internal drafting notes.

## 5. Vertical / structural / temporal relationships

- Release scope should be matched to the party list and claim list: employer, affiliates, officers, employees, agents, insurers, and other released persons only to the extent the dispute facts and settlement terms support that breadth.
- Temporal scope should reach back to the full employment relationship and any post-employment conduct tied to the dispute, while preserving only express carve-outs.
- Payment timing should align with execution, any revocation period, and any filing or dismissal milestone; do not make the employer’s payment obligation due before the agreement becomes effective if the release is subject to revocation.
- If any claim is subject to a statutory waiting or review period, the effectiveness date, release effectiveness, and payment date should be sequenced to avoid premature accrual.
- Where multiple claim types are being resolved, align each settlement component with its own reporting treatment and its own release language so the agreement reads coherently from claim, to payment, to tax treatment.

## 6. Output structure conventions

- Produce two deliverables: first, an execution-ready settlement agreement and general release; second, a concise memo to the supervising partner identifying key drafting decisions, open issues, and any assumptions.
- Draft the agreement in standard contract form with operative provisions, not as a summary of terms.
- Use conventional headings such as recitals, definitions, settlement consideration, tax treatment, release and waiver, preserved rights, confidentiality/non-disparagement, no admission, breach/enforcement, miscellaneous, and signature blocks.
- Include a tax treatment section that clearly states the intended treatment of each settlement component and the related reporting obligation.
- If an age-discrimination waiver is included, place the waiver language prominently and separately enough to satisfy statutory clarity requirements.
- The partner memo should explain the rationale for key language choices, identify any terms that need factual confirmation, and flag any risk that merits review before execution.
- Before concluding, ensure the agreement file contains operative provisions and the memo is not a substitute for the agreement.