Settlements and Formal Contracts

The problem

You finally agree to terms of settlement between you (the employer) and a former employee who has brought a claim against you for unpaid commission. Shortly before the court case a letter from your solicitor confirms your agreement to the settlement terms which had been earlier proposed in a letter from the employee’s solicitor.

The principle

The above facts are broadly those in the case of Newbury v Sun Microsystems [2013] EWHC 2180 (QB). The only glitch was that once the financial terms had been agreed there was a further dispute between the parties as to the way the agreement would be recorded. The issue for the court to determine was whether a binding settlement agreement had already been reached on the terms set out in the original letter from the employee’s solicitor.  This letter noted that the solicitor would “forward a draft agreement for approval”.

The court found that agreement had been reached even though the terms of the agreement recording the settlement had not been finalised.

The Practice

This case offers a warning to anyone offering or negotiating a settlement of any dispute. In addition to negotiating ‘without prejudice’ it is important to add the words “subject to contract” to correspondence where it is desired that the settlement should not be considered binding until a formal written agreement has been executed. If a party does not use “subject to contract”, it should ensure that all the terms it wishes to include in the settlement are clear from correspondence. Once the offer is accepted, it will be too late to negotiate further terms. Stating negotiations are ‘without prejudice’ will not (of itself) impact upon whether agreement has been reached.

For further information, help or advice please contact Tim Davies on 0191 211 7927.