In California, a settlement agreement is a binding contract that resolves a legal claim. The agreement is the deal that the parties to the dispute have reached in order to settle their disagreements short of trial or arbitration. It is the culmination of what is often a contentious negotiation process. State courts can enforce the final terms of the agreement.
Settlement agreements are contracts. They are legally enforceable arrangements by the parties involved to resolve their legal dispute. In them:
That arrangement is detailed in the settlement agreement. Once the settlement agreement is signed and approved by a California court, the prospective plaintiff loses his or her right to pursue the legal action. The party that they would have sued would have a contractual obligation to provide the compensation that they promised in the agreement.
A settlement agreement can be made at nearly any point during the legal dispute, including:
The agreement is nearly always the result of intense negotiations between the parties and their lawyers.
Settlement agreements can resolve nearly any type of civil cause of action. They are especially common in:
Settlement agreements can be simple or extremely complicated. Simple settlements generally only involve:
However, settlement agreements in California can also be used to resolve complex pending litigation outside of the courtroom, including:
Because the settlement agreement is a legally binding resolution to a legal dispute, the terms that it includes are extremely important. The personal injury lawyers at our law firm have found that vaguely worded agreements that rely on templates and a general release of claims fail more often than those that are tailor-made for your needs.
Just a few of the terms that an effective settlement agreement needs are:
Additionally, many settlement terms also include:
Settlement agreements cannot include arrangements that would violate public policy. This includes terms that are illegal or unjust.[1] A settlement agreement that would violate public policy will not be enforced by California courts, even if the superior court judge approved it.[2]
Settlement agreements generally involve a financial payment in exchange for the release of claims. That financial payment can be paid in one of two ways:
If paid in a lump sum, the party getting the money would receive all of it at once.
If paid as a structured settlement, the party waiving its legal claims would receive numerous payments that are spread out over time. If the agreement calls for a structured settlement, the precise details of when the payments are to be made are every important.
Settlement agreements should be in writing to ensure the terms are concrete, understood, and easy to recall. However, California law allows for oral settlement agreements.[3] To be enforceable, though, an oral settlement agreement must be made on the record during a hearing that is supervised by a judge.[4]
Because it is a contract, in order to be enforceable an oral settlement agreement must comply with the statute of frauds.
A settlement agreement should end the legal dispute. However, poorly drafted agreements can allow the disagreement to resume even after the agreement was made. A few ways that a settlement agreement can fall apart are:
This can result in the civil action recommencing.
In the state of California, the law about settlement agreements has undergone several recent changes.
In 2020, California Assembly Bill 2723 passed. It gave legal counsel or authorized agents more power to sign settlement agreements on behalf of their clients.
In 2023, California Assembly Bill 1756 passed. It expedites the process of rescheduling cases where a settlement agreement was being breached. It goes into effect in 2025.
Legal Citations:
[3] California Code of Civil Procedure 664.6 CCP.
[4] California Evidence Code 1118 EC.
