Mutual settlement agreements

Prepared By: Page 1 of 9
Michael Carabash

Mutual Settlement and Release Agreements (Ontario)

DISCLAIMER: Please note that the information provided in this DL Guide is NOT legal advice and is
provided for educational purposes only. Laws are subject to change and without notice. This DL Guide may
be outdated. If you need legal advice with respect to preparing, negotiating, and drafting settlement and
release agreements in Ontario, Canada, you should seek professional assistance (e.g. make a post on Dynamic
Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered
to help you. You can contact Michael Carabash directly at michael@carabashlaw.com.

Last Updated: March 2010

© 2008-2010, Dynamic Lawyers Ltd. All Rights Reserved.

Michael Carabash, B.A., LL.B., J.D., M.B.A. michael@carabashlaw.com
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Mutual Settlement and Release Agreements Page 2 of 9

Table of Contents
What is a Mutual Settlement and Release Agreement? .................................................................................. 3
When are they used? ....................................................................................................................................... 3
What are the different types? .......................................................................................................................... 3
How is a Settlement and Release Agreement structured? .............................................................................. 4
Consideration .................................................................................................................................................. 4
Defining the “Released Claims” ..................................................................................................................... 5
Release of Claims ........................................................................................................................................... 5
Payment .......................................................................................................................................................... 6
No Claims, Assignment, Assistance, Admission ........................................................................................... 6
Confidentiality ................................................................................................................................................ 7
Is a Witness Required? ................................................................................................................................... 8
General Terms ................................................................................................................................................ 8
About Us ......................................................................................................................................................... 9



What is a Mutual Settlement and Release Agreement?
A Mutual Settlement and Release Agreement is a contract with specific terms related to the idea that all of the
parties will settle a dispute with and release each other from liability. More specifically, in exchange for
receiving a release itself, each party will agree not to start or maintain any claims against any other party for
damages, costs, liabilities, expenses, etc. associated with the injuries it has or may suffer. In what follows, I’ll
discuss some general issues that you should be familiar with when drafting and negotiating these types of
agreements.

When are they used?
Mutual Settlement and Release Agreements can be used in various contexts, such as:

An auto-accident where both parties are at fault
A claim by an employee for wrongful dismissal and a counterclaim by an employer for negligence
A claim by partners that they stole business opportunities away from the partnership
A contractor being sued for negligence, who sues the client for misrepresentation

Basically, when there’s a chance that all of the parties could be at fault for SOMETHING and they want to
avoid the hassle of going to court and simply go their separate ways, they would prefer to settle their disputes.
To do so formally and to protect themselves, they want something on paper to evidence the fact that the other
party won’t go after them at some future time.

What are the different types?
Worth mentioning is that there are basically two kinds of Settlement and Release Agreements: One-Sided
and Mutual. The One-Sided Agreement involves only one of the parties releasing the other party. This
type of agreement is used when it is clear that one party was injured as a result of the other party’s act or
failure to act. The Mutual agreement, meanwhile, involves both parties settling and releasing each other.


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Defining the “Released Claims”
In the background section of the Settlement and Release Agreement, you can describe the claims that are
going to be settled and released. This description becomes a defined term – the “Released Claims” – for
ease of reference throughout the rest of the agreement. Here, all of the parties will likely want to have an all-
encompassing definition of what the Released Claims are. For example, if it’s an employee / employer
dispute, then both sides will could say something very generic like: “The parties wish to finally settle and
release each other from all disputes respecting X’s employment and termination (“Released Claims”).” This
is a pretty broad statement. Not only is anything related to X’s employment going to be released, but also
how they were terminated, the package they received, etc.

Release of Claims
So now that the parties have agreed to settle their claims, they will want a pretty strongly worded release of
claims section. Not only do the parties want to be released from past, present, and future claims of any kind
in any forum whatsoever, but they also wants their legal representatives released as well. So who are these
other persons? Well, there’s a whole bunch of different terms here worth going over:

Heirs: someone who would benefit (under the law) when the party dies without a Will.
Executors / Administrators: a person appointed by a testator to carry out his or her will.
Successors: typically used for corporations that succeed and assume the obligations of other
corporations
Assigns: a person who receives the benefit of an assignment, and can include individuals and
corporations

As you can see, heirs, executors and administrator relate to individuals while successors and assigns can
relate to both individuals and corporations.



Is a Witness Required?
For whatever reason, some people believe that a witness is required in order to make a Settlement and
Release Agreement valid and enforceable. But that’s not the case at all. There’s no statute or common law
(i.e. judge made law) that imposes this obligation. So you don’t need a witness for your Settlement and
Release Agreement to be valid. That said, it may be a good idea to have a witness in case a dispute arises as
to the capacity of the parties to enter into the agreement (e.g. one the parties was drunk or illiterate or didn’t
understand or appreciate the terms of the contract). Remember: having independent lawyers review and
witness the parties’ signing the Settlement and Release Agreement is a pretty good defence against these and
other arguments.

General Terms
The end of the Mutual Settlement and Release Agreement should include general terms such as:
Assignment: can this be done at all, by one of the parties, by both parties consenting in writing?
Amendment: can this be done at all, for example, by both parties consenting in writing?
Entire Agreement: i.e. this agreement supersedes all other agreements – whether oral or written –
relating to the same subject matters in the agreement
Governing Law: which jurisdiction governs the interpretation and enforcement of the agreement?
Independent Legal Advice: have the parties received it and are they agreeing voluntarily?
Interpretation: singular vs. plural; masculine vs. feminine, section headings, etc.
Severability: in case one provision is struck down and rendered invalid doesn’t mean the rest of the
agreement is
Survival of Terms: which terms, if any, survive the expiration or termination of the agreement?
Waiver: e.g. no failure or delay of a party to enforce or exercise its rights under the agreement
constitutes a waiver


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