Term Sheet v. Email: Drafting the Settlement Both Sides Think They Made
You are drafting a settlement agreement and mutual release to resolve a wrongful-termination claim that a former employee, Ms. Okafor, brought against her employer, a small manufacturer. The signed term sheet provides: '$85,000, payable in three equal installments on execution, day 30, and day 60'; 'confidentiality: the terms of this agreement shall be kept confidential'; 'mutual release'; 'no admission of liability'; 'employee to return company laptop and keys'; and 'final agreement to be executed within ten days.' The employer's lawyer emails: 'Per our call, the schedule is 30/60/90, and confidentiality covers only the amount - she can say the case settled.' Ms. Okafor emails: 'I want to tell my new employer why I left, and I can't be penalized if a payment is a few days late.' Your file contains a signed receipt showing the laptop and keys were returned in March, and a note that the term sheet was drafted by the employer's lawyer.
1. Draft the confidentiality clause and explain how you resolved the conflict between the term sheet and the email.
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Draft:
'Confidentiality. The parties agree to keep confidential the amount of the settlement and the payment terms. Nothing in this paragraph prevents either party from disclosing the fact that this matter has been resolved, from stating the reason for Ms. Okafor's separation from employment, from disclosing the terms to her spouse, attorneys, accountants, or tax preparers, from disclosing them as required by law or legal process (with prompt notice to the other party where lawful), or from communicating or cooperating with any government agency. Any permitted disclosure must be made without disclosing the amount.'
Reasoning: the term sheet says 'the terms'; the employer's lawyer's email says only the amount. The email is a later written statement from the party that drafted the term sheet, and it is consistent with the more specific reading; the ambiguity is construed against the drafter. Rather than pick a winner silently, the clause adopts the narrower reading and makes the carve-outs express, because language literally covering 'the terms' would bar Ms. Okafor from explaining her departure - the one thing she says she needs - and a clause appearing to bar agency cooperation may be unenforceable. Send the draft with a cover note stating that it follows the email and ask the employer's lawyer to confirm in writing.
2. Draft the payment and default provision to address Ms. Okafor's concern, and explain the risk it creates for your client.
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Draft:
'Payment. Employer shall pay $85,000 as follows: $28,333.33 within five business days after execution; $28,333.33 on or before day 30; and $28,333.34 on or before day 60. Time is not of the essence as to any installment. If an installment is not paid when due, Employee shall give written notice, and Employer shall have ten business days to cure. No installment shall be deemed in default, and no acceleration or fee-shifting shall apply, unless the cure period has expired without payment.'
Reasoning: the term sheet's 30/60 schedule and the email's 30/60/90 conflict. Payment timing is rarely material enough to justify abandoning a settlement, so propose the schedule the email describes and flag it rather than fight over it. The client's stated concern is a late penalty, and the cure period is the direct answer: it converts a hard default into a notice-and-cure event, which is standard and usually acceptable to a sophisticated employer. Note the arithmetic: three equal shares of $85,000 do not divide evenly, so the final installment carries the extra cent. The risk to flag to the partner is that the employer may refuse a cure period and insist the term sheet controls; the client should understand that the cure right exists only if the employer signs it.
3. What do you do about the laptop clause and the ten-day deadline?
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Laptop and keys: the file contains a signed receipt showing return in March, so a clause requiring return would create a promise already performed and could be breached on paper for no reason. Draft a representation instead: 'Employee represents that she returned the company laptop and keys on or before March 14, 2024, and Employer acknowledges receipt.' That converts an open obligation into a documented fact, protects her against a later claim that she failed a condition, and gives the employer nothing it does not already have.
Ten-day deadline: the term sheet says the final agreement is to be executed within ten days, but a term sheet containing all material terms may itself be an enforceable agreement, so missing the date is not a free pass to renegotiate. Send a draft with a cover note within the deadline, identify the two open points - installment schedule and confidentiality scope - in that note, and ask the partner whether to raise them by email before circulating the draft. Document the term sheet's date and the deadline in the file. A drafting dispute should not be allowed to run the clock down.