Can settlement agreement terms be ambiguous?

Their called Operation Agreements, and every partnership and LLC should have one. Most do.

If you enter into a binding contract you have to honour the terms unless there was fraud, mistake or misrepresentation as a basis to set aside or renegotiate.

Typically in a settlement agreement there are terms that identify what the parties can do if there is a dispute. If the settlement agreement does not have dispute resolution language, then the parties genrally refer to the contract the parties engaged in, if there was one, and look to the dispute resolution in that document. As a CT licensed contract attorney and arbitrator, I can assist you with dispute resolution. Please contact me if you need further assistance. Donya Gordon

First of all, it matters who drafted the agreement, who are the parties to the agreement, and what precisely is being "settled"? Typically an "agreement for judgment" is the most binding settlement agreement, since the agreement becomes an order of the court once it is approved by the presiding judge. However, you have to already be in court (i.e., sue or be sued) to get the benefit of that. Was there a lawsuit filed or a lawsuit threatened?

In Washington, there are no punitive damages. Employment resolutions are usually based on some percentage or multiple of a person's salary. It is your job to reach a settlement that is fair and reasonable for you, not for a litigant against you (that's their job, not yours). If you are having difficulty resolving this dispute, you may want to consider mediation. Before you pay the employee, be sure to have them sign a full and complete release of all current and future liability and claims against you individually, your business, your heirs; etc. Also, if you have business insurance, it's possible you are entitled to a free attorney to represent you in this dispute.