You should read this if you negotiate settlement agreements
The 20 second summary
A recent High Court decision suggests that employers should take a belts and braces approach in emphasising during settlement negotiations that the deal is “subject to signed contract”, and so is not binding until it is signed. This helps make clear that your intention is not to agree a binding settlement before signing a detailed settlement agreement that covers all the issues, not just the heads of terms.
Employee accepts settlement offer of a lump sum payment for waiver of his claims
In Newbury v. Sun Microsystems the employer’s solicitors made a settlement offer of a lump sum payment, in full and final settlement, “such settlement to be recorded in a suitably worded agreement”. The employee accepted the offer. The parties could not subsequently agree a suitably worded agreement. The employer wanted to include terms not expressly mentioned in its earlier offer, for example relating to confidentiality. The employee’s solicitors argued that the correspondence between the parties was sufficient to constitute a valid written agreement.
Negotiations created a binding contract without need for a subsequent written agreement
In a surprisingly harsh decision, the High Court held that a binding contract was created when the employee accepted the headline settlement offer. The Court said that even though the offer provided for settlement to be recorded “in a suitably worded agreement”, this did not make the negotiations subject to agreement on other matters. Instead, that wording just meant that the settlement would be recorded in a suitably worded agreement which reflected the headline terms.
Practical points for employers
- Make clear throughout that your negotiations are subject to discussion and agreement on additional (or different) terms. The words “subject to signed contract” are a useful shorthand to suggest this.
- In a similar vein, where negotiations are “without prejudice”, it is best practice to emphasise this throughout.
- Many employers and solicitors would probably have done what had been done by the employer’s solicitors in this case, and relied on similar wording (and most employee’s solicitors would not have even taken the point). However the lesson to be learned is that to be on the safe side, making all settlement negotiations “subject to signed contract” limits the possibility of a court taking such a hard line as in this case.