A covenant not to sue is a binding contract in which you agree, in exchange for something of value, not to file a lawsuit against a specific party over a specific dispute. The claim itself technically stays alive, but you’ve given up your right to enforce it in court. If you break the promise and sue anyway, the other side can point to the agreement to get the case dismissed and can turn around and sue you for breach of contract.
That structure is what separates it from a release, and the difference matters more than it first appears.
How It Differs From a Release
A release destroys the underlying legal claim. Once signed, the claim ceases to exist. A covenant not to sue keeps the claim alive but places a contractual lock on your ability to enforce it.
Two practical consequences follow. First, a release is a completed act with nothing left to perform. You can raise it as a defense if someone sues you despite signing one, but there’s generally no ongoing obligation to breach. A covenant is an ongoing promise, so a violation gives the protected party a real breach-of-contract claim with teeth.
Second, the covenant was invented to solve a specific problem with releases. Under the old common-law rule, releasing one person who shared responsibility for your harm automatically released everyone else who shared that obligation. Settle with one of three jointly responsible parties by signing a release, and the other two walked free. A covenant not to sue sidestepped that trap because it wasn’t a release at all. You simply promised not to sue one person while keeping your claims against the others fully intact.
What the Agreement Has to Contain
A covenant not to sue is a contract, so the usual contract rules apply. Three elements do most of the work.
The Parties
The agreement needs to name the person making the promise (sometimes called the covenantor) and the person being protected (the covenantee). Vague descriptions like “all related parties” invite later disputes about who is actually covered. Well-drafted covenants identify the protected party by name, and if the protection is meant to reach subsidiaries, employees, or family members, those extensions are written in.
Consideration
Both sides have to give up something. Courts will not enforce a gratuitous promise not to sue. The consideration is usually money, but it can be a mutual promise, a forbearance, or the dismissal of pending claims. A one-sided promise with nothing in return looks like an unenforceable gift.
Scope
Scope defines which claims are covered. A well-drafted covenant might cover “all claims arising from the construction defect discovered at 123 Main Street in March 2025.” A poorly drafted one references “the dispute between the parties” and leaves everyone to argue later. Scope also includes what the covenant does not cover: many agreements explicitly preserve the right to file complaints with government agencies, and some preserve claims that didn’t exist when the covenant was signed.
What Happens If You Sue Anyway
Filing a lawsuit after signing a covenant not to sue is a breach of contract. The party you sued can present the covenant to get the case dismissed and can then bring its own breach claim against you.
The fight is usually about damages. Courts around the country are split on whether the defending party can recover attorney’s fees as damages for the breach. Some apply the traditional American rule against fee-shifting. Others reason that the fees in this situation aren’t ordinary litigation costs but direct damages caused by the breach, since the whole point of the covenant was to avoid needing a lawyer. Well-drafted covenants sidestep the uncertainty with a clause that explicitly makes the breaching party responsible for the other side’s legal costs.
Many covenants in employment and severance agreements go further still. They require the breaching party to return any settlement payment received under the agreement, minus a small nominal amount.
Why It Matters When Multiple Parties Caused the Harm
The multi-party situation remains one of the main reasons these agreements exist. When several people share responsibility for the same injury, settling with one of them without accidentally releasing the others takes careful drafting.
The Uniform Contribution Among Tortfeasors Act, adopted in some form by many states, addresses this directly. When a covenant not to sue is given in good faith to one of several people liable for the same injury, it does not discharge the others from liability. It does reduce the injured party’s claim against the remaining parties by the amount the settling party paid. The settling party is also freed from contribution claims the others might try to bring against them.
The practical effect: you can settle with one responsible party, take their payment off the top of your total damages, and still pursue the rest, while the settling party knows they’re done.
Where You’ll See One
Personal Injury and Insurance Settlements
Covenants not to sue appear constantly in personal injury settlements where more than one party may be at fault. An insurer settling for its policyholder may prefer a covenant over a release precisely because the injured person still has claims against other parties. The covenant protects the settling insurer’s policyholder without interfering with the broader case.
Severance and Employment Agreements
Severance packages often pair a general release of claims with a covenant not to sue. Employees over 40 must be given at least 21 days to consider the agreement and 7 days to revoke it after signing, a requirement that comes from the Older Workers Benefit Protection Act.
One wrinkle is worth knowing. The EEOC has taken the position that covenants not to sue are problematic under federal discrimination statutes. Under the Age Discrimination in Employment Act specifically, a covenant not to sue can actually invalidate an otherwise enforceable release of an age discrimination claim. Employers haven’t stopped using them, but the covenant portion has to be drafted carefully so it doesn’t undermine the release it was meant to reinforce.
Patent and Technology Licensing
In patent licensing, a company might include a covenant promising not to sue the licensee for past infringement, giving the licensee confidence to enter the deal without worrying about activities that predate the agreement. Federal courts have treated a non-exclusive patent license as essentially equivalent to a covenant not to sue, since the patent holder is granting freedom from suit rather than transferring ownership.
Neighbor and Property Disputes
Fence encroachments, boundary disagreements, and drainage issues are a natural fit. One neighbor might accept a payment in exchange for a covenant not to sue over an encroachment, closing out that specific dispute while leaving both sides free to address unrelated issues later.
When a Covenant Can Be Thrown Out
Because it’s a contract, a covenant not to sue is vulnerable to the usual contract defenses: fraud, duress, lack of consideration, and unconscionability. A party pressured into signing under threat, deceived about material facts, or given nothing of value in return has grounds for a court to refuse enforcement.
Scope problems are another frequent basis for challenge. A covenant drafted so broadly that it covers claims the signing party couldn’t have known about, or so vaguely that reasonable people would disagree about what it covers, is exposed. Courts generally enforce covenants that identify specific events, dates, and types of claims, and look skeptically at agreements that try to sweep in everything imaginable.
Public policy also overrides otherwise valid covenants. Agreements that try to prevent someone from reporting criminal activity, filing complaints with government agencies, or cooperating with regulatory investigations are generally unenforceable no matter how much consideration was paid. That’s why so many well-drafted covenants explicitly carve out the right to file charges or participate in government proceedings.
The party challenging the covenant carries the burden. Courts start from a presumption that a signed contract means what it says, so the challenge needs more than regret. The strongest cases involve clear evidence that the agreement was fundamentally unfair from the start, or that the signing party didn’t understand what they were giving up.