Know if You Should Sign a Covenant Not to Sue

You most likely will be presented with a covenant not to sue in one of two situations: when offered severance after being laid off from a job or when offered a settlement to a lawsuit. In both situations, the other side wants you to agree not to sue in order to get money in return. Before you can make an informed decision about whether to sign, you need to analyze the strength of your legal claims against the other side. For example, if you have a very strong case for wrongful termination, you might refuse to sign a covenant not to sue. However, if your case is weaker, then you should sign the covenant not to sue in order to get your severance pay.


Signing a Separation Agreement to Get Severance Pay

  1. Identify if your layoff violates your contract. If you are laid off, your employer might offer severance if you sign a covenant not to sue. For example, you might be offered three months’ salary in exchange for not suing. Before agreeing to sign a covenant not to sue, you need to analyze whether you have a valid wrongful termination claim.
    • You have a wrongful termination claim if you are sued in violation of your employment contract, whether written or implied. An implied contract is often created by explicit promises made in employee manuals, such as a promise not to fire you unless there is “just cause.” If your employer fires you without a reason, then you could sue for wrongful termination.[1][2]
    • For more information on when you can sue, see Sue for Wrongful Termination.
  2. Check if you were discriminated against. Your employer might have discriminated against you when you were laid off. Federal and state laws prevent an employer from discriminating against you on the basis of certain protected characteristics, such as race, ethnicity, sex, age, or disability.[3] You should check to see if you were let go for a prohibited reason.
    • Did your employer say or do anything that makes you think you were let go for a discriminatory reason, such as your sex, race, age, religion, etc.? If so, then save documentary evidence, such as reprimands, emails, or written notes.
    • Did the layoffs affect only one class of people? For example, were only women laid off? Were only Latinos laid off? If so, then you have some evidence of a discriminatory motive for letting you go.
  3. Meet with an employment lawyer. A lawyer can help you understand if a severance package is a good deal. You should discuss with the lawyer whether you were wrongfully terminated or whether you were discriminated against.
    • You can find a qualified employment lawyer by visiting your state or local bar association and asking for a referral.
    • Once you have the name of a lawyer, call to schedule a consultation. At the consultation, show the lawyer what evidence you have of wrongful termination or discrimination. The lawyer will analyze the strength of your case.
  4. Understand the covenant not to sue. Some covenants not to sue can be for a limited duration. For example, you might agree not to sue for a year. You could then bring a lawsuit after the covenant expires.
    • However, most covenants not to sue will be perpetual. This type of covenant is essentially valid forever.[4]
    • Look at your separation agreement to see what kind of covenant your employer wants you to sign.
  5. Analyze the amount of severance offered. You should compare the amount of severance against the strength of any case you have for wrongful termination or employment discrimination. For example, you might not have any case for either. In this situation, signing a separation agreement with a covenant not to sue isn’t going to cost you anything.
    • Likewise, if your lawsuit against your employer is weak, then you might want to take the severance and sign the covenant. A weak case might be one where you think you were discriminated against, but you don’t have solid proof.
    • However, if your case is strong, then you need to discuss with your lawyer whether to settle for severance. By settling, you get money. Nevertheless, you will forfeit any ability to sue your employer in the future if you sign the covenant not to sue.[5]
  6. Realize that you can still file a discrimination charge. Even if you sign a separation agreement with a covenant not to sue, you may still file a discrimination claim with the Equal Employment Opportunity Commission (EEOC). It is against the law for an employer to ask you to waive your right to file a discrimination claim with the government.[6]
    • Your employer also cannot limit your ability to testify or participate in the investigation with the EEOC.
    • However, the covenant can bar you from recovering money in an enforcement action filed by the EEOC against your employer.[7]

Signing a Covenant to Settle a Lawsuit

  1. Analyze the settlement offer. After you file a lawsuit, you might be offered a settlement. As part of that settlement, you may be asked to sign a covenant not to sue.[8] Before agreeing to sign, you should analyze the settlement offer. Look for the following:
    • How much money you are being offered.
    • Whether your attorneys’ fees are included in the settlement.
    • Whether the settlement is a lump sum or structured as a series of payments over time.
  2. Calculate your economic losses. Before deciding whether to settle, you need to have a general sense of how much your injury is worth. You should calculate the economic loss you suffered because of the injury. For example, if you suffered personal injuries in a car accident, then you could get compensation for the following:[9]
    • medical expenses
    • lost wages
    • property damage
    • lost earning capacity
  3. Calculate your general damages. ”General” damages are injuries suffered for which money is only a rough substitute. Generally, you can get 150% to 500% of your total economic loss in general damages. For example, you could recover for the following:[10]
    • pain and suffering
    • shock and mental anguish
    • emotional distress
    • humiliation or embarrassment
    • loss of society and companionship
  4. Adjust the damages amount. To fully understand the amount of your injury, you should adjust the amount of economic losses and general damages by the following, all of which can reduce the amount of your monetary compensation:[11]
    • Whether you were partially at fault. In most states, your fault will reduce the amount of money you can get. For example, if you were 25% at fault for the car accident, then your compensation could be reduced by 25%.
    • Whether you could have mitigated the damages. You might have wrenched your back in the car accident. However, if you refused to go to the doctor for two weeks, then your overall compensation for pain and suffering could be reduced.
  5. Meet with an attorney. A qualified attorney has experience valuing how much lawsuits are worth. You should get a referral to a personal injury lawyer and talk about your case. Your attorney can analyze your injuries and other factors, such as where the lawsuit is being brought, to estimate how much you could win at trial.
    • To Find a Good Personal Injury Lawyer, you can contact your state or local bar association and ask for a referral. Once you have the name of an attorney, you should schedule a consultation.
    • Take all relevant documents to your consultation, such as medical reports and bills, as well as a police report, information about insurance, or other evidence.
  6. Compare the settlement amount to the value of your injury. When deciding whether to sign a settlement agreement and a covenant not to sue, you will need to compare the amount offered to the value of your injuries. If the amount offered compares favorably, then you can sign the settlement agreement and agree to the covenant.
    • If you think the offered amount is too low, then you and your attorney can continue to negotiate for a higher amount.