Termination of employment: settlement negotiations must be 'subject to contract'
Author: Charlotte Staples
A recent case has highlighted the pitfalls of failing to make any settlement offer 'subject to contract'.
The recent case of Newbury v Sun Microsystems demonstrates the importance of making any settlement offer not just 'without prejudice' but also 'subject to contract'. In this case, the parties found themselves bound by two without prejudice letters in which a settlement was offered and accepted. The High Court found that these letters amounted to a contract in themselves and no further settlement agreement was required to make the settlement binding on the parties.
Practical tips for HR
When entering into discussions with an employee about resolving a potential or actual claim and/or terminating their employment make sure that:
- if a settlement offer is made verbally, the employee is simultaneously informed that the offer is 'without prejudice and subject to contract'.
- If settlement is to be concluded in a Settlement or COT3 Agreement, make sure any correspondence setting out or confirming a settlement offer is marked 'without prejudice and subject to contract' to make it clear that negotiations over the drafting of the Agreement will follow.
- If a verbal/written offer is not made 'subject to contract', make sure that all of the terms of the offer have been clearly and accurately communicated to the employee including, for example, confidentiality terms, the claims that will be compromised and all the terms relating to the termination of the employee's employment.
As this case shows, if the offer is not made 'subject to contract' and it is subsequently accepted, it will be too late to negotiate new terms/additional amendments at that point. This applies equally to 'without prejudice' situations i.e. where there is a pre-existing dispute between the parties and to offers made under the new provisions relating to pre-termination discussions under section 111A Employment Rights Act 1996.