How to review a settlement agreement

A settlement agreement ends a dispute by exchanging payment or other consideration for a release. The deal points are usually agreed in a term sheet or mediation, but the written agreement decides what is actually released, what can still be said, and what happens if someone does not pay. This checklist covers commercial and employment settlements under US law.

Last checked: 17 October 2026. The law changes; check the current position before relying on this page.

Clause checklist

• Parties and released parties. Check who gives and who receives the release, including affiliates, officers, insurers and successors. A mutual release should be genuinely mutual.
• Scope of the release. Released claims should match the deal: claims arising from the dispute, or all claims up to the signing date. Check carve-outs for obligations under the settlement itself, indemnity rights, insurance claims and claims that cannot be released by law.
• Unknown claims. California Civil Code section 1542 preserves unknown claims unless expressly waived, and some other states have similar rules. A general release usually includes a specific waiver.
• Payment terms. Amount, timing, method, conditions (such as signed tax forms or dismissal filings) and the consequence of late payment.
• Dismissal. If litigation is pending, specify dismissal with or without prejudice and whether the court keeps jurisdiction to enforce the settlement.
• No admission. Standard, but check it does not conflict with any agreed statement.
• Confidentiality and non-disparagement. Define what is confidential (terms, amount, the dispute itself) and permitted disclosures to advisers, tax authorities and regulators.
• Tax treatment. Allocation between wages, non-wage damages and fees affects withholding and reporting. Avoid tax representations a party cannot give, and include a tax indemnity where appropriate.
• Medicare. If the claimant is a Medicare beneficiary and the settlement involves medical expenses, consider Medicare Secondary Payer obligations.
• Default and enforcement. Consider stipulated judgments, attorney fees for enforcement and a cure period.
• Entire agreement and governing law. Make sure earlier term sheets are superseded, and choose a law and forum for enforcement.

Employment settlements

• Age discrimination releases. Under the Older Workers Benefit Protection Act, a release of federal age claims by a worker aged 40 or over must give at least 21 days to consider (45 days in group programs, with required disclosures), a 7-day revocation period, written advice to consult a lawyer, and specific reference to ADEA claims.
• Non-waivable rights. Workers generally cannot waive the right to file a charge with the EEOC or similar agencies, or certain wage and workers' compensation claims. Carve these out.
• Speak Out Act. Pre-dispute non-disclosure and non-disparagement clauses are unenforceable for sexual assault and sexual harassment disputes under the federal Speak Out Act. It does not cover post-dispute settlement terms, but several states restrict confidentiality in harassment and discrimination settlements. Check the state.
• Tax deduction for harassment settlements. Section 162(q) of the Internal Revenue Code denies a deduction for settlements of sexual harassment or abuse claims subject to a non-disclosure agreement.
• Whistleblower protections. SEC Rule 21F-17 prohibits impeding communications with the SEC. Confidentiality clauses should not stop reporting to regulators.

A settlement agreement review workflow in Word

LexDraft is a Word add-in from Microsoft AppSource. It opens as a side panel in Word 365 (Windows and Mac), Word 2021 and Word on the web, so the agreement never leaves the tool you already draft in.

1. Open the agreement in Word and open LexDraft in the side panel.
2. Pick the governing law. Select the state named in the governing law clause so LexDraft looks for state-specific red flags.
3. Run the review. LexDraft has four built-in playbooks (NDA, SaaS MSA, DPA and services agreement) and no dedicated settlement agreement playbook, so this runs as a general review against the governing law you chose. Use the checklist on this page to direct your own read.
4. Triage by severity. Findings are graded Critical, High, Medium or Low, and LexDraft flags standard terms that are missing.
5. Run the quick checks. The defined-term and cross-reference checks are rule-based and run without AI.
6. Accept or reject each redline. Accepted changes land as native Word tracked changes.
7. Verify and sign off. You check every output before it goes to the client or the other side.

What LexDraft does not do

LexDraft does not give legal or tax advice or decide whether a release is enforceable. Nothing changes in your document until you accept a redline.

This guide is general information, not legal advice. LexDraft does not give legal advice; qualified counsel must review every draft. Spotted something out of date? Email support@lexdraft.ai and we will fix it.