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GN Law Media: How not to draft a settlement agreement

When settling employment claims, the most common form of agreement used is the settlement agreement or 'compromise agreement' as it was formerly known. 

This is the only way to waive many of the statutory rights given to employees in employment law.  It is, however, worth remembering that a breach of contract claim does not need to be settled using a compromise or settlement agreement.  It can be settled using ordinary contractual principles.  This is where one law firm got caught out.  In contract law the long established principles of offer, acceptance and consideration apply. 

In the recent case of Newbury v Sun Microsystems, the employer’s solicitor had sent to the employee a letter setting out the sums on offer as settlement, but very little in the way of terms.  The employee wrote back accepting the offer and the employer’s solicitors then sought to agree terms which could not be agreed.  The employee sought to enforce the letter as a contract.

The Court found that the letter should have included the words “subject to contract" if there was to be further negotiations as to the terms. The original offer with consideration and the subsequent acceptance by the employee had formed a binding contract which was binding.  

Sarah King, Consultant Solicitor

Posted on Wednesday, 18th September 2013