By Charles Power

It’s common to settle employee claims by first reaching an in-principle agreement about settlement terms and then recording the settlement in a more comprehensive deed executed by the parties.

What if the applicant refuses to execute the deed? Can the employer rely on the in-principle settlement?

Under the Fair Work Act 2009 (Cth) unfair dismissal scheme the Fair Work Commission (FWC) has the power to dismiss an unfair dismissal application if the applicant fails to discontinue the application after a settlement agreement has been concluded.

A common situation is where one party to the dispute makes an offer and the other party responds with an outline of settlement terms.

If a reasonable person in the position of the offeror would regard the response as corresponding to the offer, then there is unconditional acceptance of the settlement offer and a settlement agreement is made.

If a reasonable person in the offeror’s position would regard the response as qualifying the original offer such that it would amount to a counter-offer or, at any rate, not an unconditional acceptance of what was originally offered, then there is no settlement.

The language used by the offeree in their acceptance of the offer must be such as would convey to a reasonable person in the position of the offeror a clear and definite decision by the offeree to be bound by the terms of the offer, leaving nothing further to be negotiated.

Conduct of the parties after the making of the supposed agreement is relevant. Such conduct may be considered in order to determine whether the prior dealings between the parties gave rise to a binding contract.

An in-principle agreement generally indicates that there is no intention yet to enter into a binding settlement – but not always.

In some cases, the in-principle agreement is about the essential terms of the settlement and the parties’ intent to be immediately bound by them.

The fact they propose a restatement of the terms of settlement in a fuller or more precise form, but not different in effect, in a deed doesn’t mean the in-principle agreement is not binding.

In other cases the in-principle agreement records all the agreed terms of the settlement the parties have agreed to make performance of those terms subject to creation and execution of a deed. In this case a contract binds the parties to bring the deed into existence and to execute it. There is no further negotiation of terms.

In Badcock v N & HM Cooper Motor Search (SA) & Car Clearance Centre (SA) T/A Motor Search (2018) the applicant emailed the employer to confirm an ‘in principle agreement’ that upon receipt of $8,000 the applicant would discontinue his unfair dismissal claim.

The employer then forwarded to the applicant a relatively standard, but comprehensive, deed that purported to release the respondent from all claims arising from the employment, with the only exception being workers compensation matters. The payment term was stated to be 7 days from the signing of the deed.

The applicant asked for the deed to be amended seeking payment within 24 hours. This amendment was made. The applicant refused to sign the amended deed, without explanation as to why, and sought to continue his claim. The employer applied for the FWC to dismiss the claim on grounds that settlement agreement existed between the parties.

The FWC ruled that the expression ‘in-principle’ meant a binding agreement was reached; albeit that they now have a different view as to what was intended.

Both parties intended to make a binding agreement and proposed restatement of the terms of settlement in a fuller or more precise written form in a deed. This was consistent with the conduct of the parties including the communications made by them immediately after the meeting.