August 15, 2013

Are your settlement negotiations “without prejudice and subject to contract”?

Posted in Employment, Employment

Mr Newbury fell into dispute with his employers over the payment of commission. Just before the trial Sun Microsystems’ lawyers wrote to Mr Newbury offering a settlement figure of £601,464.98 to be paid within 14 days. Mr Newbury accepted this offer and agreed to forward a draft agreement to Sun Microsystem for their approval. However, when the parties’ attempts to agree all the terms of the agreement failed, Mr Newbury argued that in fact a binding settlement had been reached and he was owed the £601,464.98. The High Court agreed that, on the wording of the offer letter, Mr Newbury was able to say ‘yes’ and when he did so there was a binding agreement.

Why did this happen? It is common practice when lawyers negotiate to first agree the financial settlement and then sort out the detail of the agreement later. The assumption has been until now that it’s not binding until a formal settlement agreement has been signed by all the parties.

This case highlights the importance when discussing settlement of a dispute of employers informing employees from the outset that settlement discussions are without prejudice and subject to contract. As a brief reminder: without prejudice means that statements made in a genuine attempt to settle an existing dispute are prevented from being put before a court or tribunal as evidence against either party. The term subject to contract confirms that an offer is not binding until a contract is agreed. So, failure to inform the employee that offers, whether they are verbal or in writing, are subject to contract could result in employees (like Mr Newbury) being entitled to accept an offer of compensation but refuse to sign a settlement agreement giving up their rights.

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