Do Mediated Settlements Have to Follow the Law?

Answer: No.

Any settlement reached through mediation is going to be "memorialized" in a written settlement agreement. That settlement agreement is an enforceable contract between the parties who entered into the agreement.

Although mediated settlements can be very creative (much more so than resolutions reached through litigation), and although they do not need to "follow the law," this does not mean mediated settlements can be based on illegal terms. If any contract is based on illegal terms, it will not be enforceable. Enforceability of any settlement agreement or contract is very important. Why spend all that time crafting an agreement that will not be upheld if challenged?

Here's an example from an employment case: In the complaint alleging wrongful termination, the employee asks for compensation for lost wages and benefits and emotional distress. He asks for these specific remedies because if the case goes to trial, and if the employee is successful in proving wrongful termination, these are (typically) the only possible remedies provided for under the law.

But in mediation, the parties can get more creative than they are allowed to under the law. Maybe it would be beneficial to the employee to obtain a letter of reference from the employer to use in his new job search as well as a continuation of health benefits for the employee and his family until he gets a new job. Or maybe the employer has contacts at another company and could actually help get the employee another job. Having these needs fulfilled makes more sense for this employee who sees he may have trouble in court proving his wrongful termination case.

In mediation, the parties can craft a resolution that includes these other interests instead of just focusing on the actual lost wages and benefits or proving each element of the claims. In court, the remedies are limited to what is provided under the law. But a mediated result is not limited by what the available legal remedies are. However, a mediated settlement, just like any other settlement agreement or contract, still cannot include illegal terms. An example of an illegal term would be one party agreeing to rob a bank to obtain the money necessary to pay the other party. That's not going to be enforceable even if it is a signed agreement.