New York Federal Court Ruling Highlights a Potential Pitfall in Settlement Agreement Enforcement

Quick Hits

• New York’s General Obligations Law (GOL) § 5-336 and Civil Practice Law and Rules (“CPLR”) § 5003-B both impose strict requirements on nondisclosure clauses in matters involving discrimination claims, including that the inclusion of such clauses in a settlement agreement be at the plaintiff’s preference.
• The U.S. District Court for the Eastern District of New York recently held that an unsigned GOL § 5-336 and CPLR § 5003-B acknowledgment form annexed to a settlement agreement did not constitute a separate settlement agreement; rather, it was “a material component of the broader [s]ettlement [a]greement,” as its execution was required to make the settlement agreement “effective.”
• Employers may want to consider how they structure settlement agreements involving discrimination claims subject to GOL § 5-336 and CPLR § 5003-B and ensure all material components of such agreements are fully executed to avoid settlement enforceability issues.

Separ v. County of Nassau: Background and Ruling

In Separ v. County of Nassau, the parties entered into a settlement agreement to resolve allegations of discrimination and retaliation. The agreement complied with New York’s statutory requirements under GOL § 5-336 and CPLR § 5003-B by including provisions for a twenty-one–day consideration period and a seven-day revocation window, both exercisable by the plaintiff, Anne Separ. However, the settlement’s enforceability hinged on the execution of an acknowledgment form annexed to the agreement documenting Separ’s preference for confidentiality and nondisparagement. While Separ signed the agreement itself, she refused to sign the acknowledgment, leading the employer to seek judicial enforcement of the agreement.

The U.S. District Court for the Eastern District of New York rejected the employer’s argument that the acknowledgment was “separate and apart” from the settlement agreement and “ha[d] no bearing on whether the [a]greement itself [was] binding and enforceable on the parties.”

Finding that the acknowledgment was a material component of the broader agreement and that enforceability depended on all required components being fully executed, the court held that the execution of the acknowledgment acted as a condition precedent to effectuate the settlement per the “effective date” provision contained in the agreement.

Considerations for Employers

The Separ decision emphasizes the importance of careful drafting and execution of settlement agreements, particularly when including nondisclosure provisions subject to GOL § 5-336 and CPLR § 5003-B. Moving forward, employers in New York may wish to review and update their internal settlement templates to ensure compliance with the Separ framework to avoid unintended pitfalls. Some suggestions include:

• considering how the settlement agreement is structured;
• ensuring all material components of the settlement agreement that require execution are fully executed; and
• ensuring compliance with the consideration and revocation periods mandated by both GOL § 5-336 and CPLR § 5003-B.

Ogletree Deakins’ New York and Buffalo offices will continue to monitor related developments and will provide updates on the New York blog as additional information becomes available.

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