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“Did We Shake on That?”— Seventh Circuit Enforces Handwritten Settlement Agreement

The United States Court of Appeals for the Seventh Circuit recently upheld a district court decision concluding that a handwritten agreement was an enforceable settlement of employment discrimination claims, over the plaintiff’s objection that the handwritten document was merely a preliminary step toward a more formal agreement. The case serves as a reminder to employers to use caution in the process of formulating any agreement that could be construed as an enforceable contract.

The plaintiff in Beverly v. Abbott Laboratories, No. 15-1098 (7th Cir. 2016) alleged violations of Title VII and the Americans with Disabilities Act after her employment had been terminated. The parties scheduled a mediation of the claims, and the company’s attorney provided a six-page typewritten “template settlement agreement” the day before the mediation in anticipation of a potential settlement.

Near the end of fourteen hours of mediation, the parties and their counsel signed a handwritten agreement stating the company’s offer to settle the claims ($200,000 plus company-paid mediation costs), as well as the plaintiff’s demand to settle the claims ($210,000 plus company-paid mediation costs). The note closed by stating the parties’ commitment that the offer and demand would be open for a specified period of time.

The company’s counsel contacted the plaintiff’s counsel the next day to accept the plaintiff’s demand, attaching a completed version of the template agreement that allocated the $210,000 to various claims and included a non-disparagement provision. Plaintiff’s counsel enthusiastically responded to the email, but the plaintiff ultimately refused to sign the completed template agreement. The company then proceeded with the release of the claims on the basis of the handwritten document.

The plaintiff argued that the handwritten agreement simply captured an intention to execute a binding settlement agreement in the future, but the court applied state law contract principles in concluding that the handwritten document did in fact define the parties’ intentions and obligations and demonstrated their intent to be bound by it. The court instructed that the anticipation of a more formal future writing does not nullify an otherwise binding agreement, especially where nothing in the proceedings or the handwritten document indicated that a future formal agreement was necessary for the deal.

The plaintiff also failed to convince the court that the handwritten document was unenforceable due to the absence of a variety of terms, including the specific allocation of settlement amounts (which had a tax impact on the plaintiff). The court pointed out that the plaintiff offered no explanation that these items were essential to the settlement and release of the claims.

The court did take the opportunity, however, to note the absence of a transcript of the mediation session and to encourage future litigants to record communications relating to final settlement agreements. Also, although this case was a win for the company, employers are well advised to pay careful attention to any representations made to a claimant (written, typed, or even spoken) that the employer would not want to see enforced as a binding contract.


About the Author

Andrew leverages a unique combination of legal and tax accounting skills to provide clients with actionable business-oriented solutions to legal questions. Andrew counsels clients on a wide variety of employee benefits issues, including employee stock ownership plans (ESOPs), health and welfare plans, qualified retirement plans, and nonqualified deferred compensation plans. Andrew's tax experience covers business income tax, sales and use tax, and employment tax compliance.

 Contact Andrew by email or phone (608) 252-9200.

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