Siobhan Murphy
Posted on 16 Mar 2021

Can an employee or employer choose to accept parts of a settlement offer whilst rejecting others?

Evergreen Timber Frames Ltd v Harrington UKEAT/0072/20

Background

Mr Harrington (the Claimant) was employed by the Respondent in a managerial role for just over two years. His benefits included a company car, a bonus and a computer. In consequence of a challenging trading environment, the Respondent decided to cease trading in its current form. It informed the Claimant that he was at risk of redundancy. He was subsequently dismissed for that reason on 1 August 2018.

In the lead-up to his dismissal, the Claimant and the Respondent negotiated severance terms. The negotiations included discussions around his company car, computer, and bonus payment, which would be conditional upon the Claimant working his notice period.

The final meeting regarding the severance terms took place on 3 July 2018. At the meeting, the Claimant received a redundancy letter which set out that the Claimant would be gifted his company car, however, it was silent on the computer and bonus pay. The Claimant therefore accepted certain terms of the offer, including the car, but confirmed that he was not happy with the omission of the computer and bonus pay. He submitted an appeal letter on the basis that the letter was incomplete. The Claimant was subsequently invited to an appeal meeting. At the meeting, in the final week of his notice, he was told that he would not be entitled to the company car.

A dispute arose in relation to what the Respondent had agreed to give the Claimant as part of his redundancy package. The Claimant brought proceedings for breach of contract to the Employment Tribunal (ET) on the basis that he was dissatisfied with the severance terms proposed and that he wanted it to reflect all matters he believed had been agreed, namely the car, the computer and the bonus. The Respondent resisted the claim, saying that there was no contractual agreement to that effect.

What did the ET decide?

The ET partially upheld the Claimant's breach of contract claim and awarded him damages in the sum of £8,400 (which it found to be the value of the car). It held that the letter handed to the Claimant on 3 July 2018 was made in the context of bringing about the agreed termination of the Claimant's employment on the ground of redundancy and it was to be read in that context.

The Claimant's appeal was not seen to be a rejection or counter-offer but, instead, acceptance of the letter of 3 July subject to (i) clarification; and (ii) his appeal on what he said were the terms that were not included but should have been.

The Respondent appealed to the Employment Appeal Tribunal (EAT) on the basis that the ET erred in law.

What did the EAT decide?

The EAT held that the ET erred in concluding that a binding agreement had been reached for transfer of ownership of the company car. The Claimant was not entitled to accept part of the severance offer, whilst seeking to improve on other parts. The judgment stated that "the negotiation of such agreements would become too complex if it were possible to reply to an offer in a form that permitted a party unilaterally to sever, and then accept, some terms, while rejecting, or seeking improvement to, others."

The offer of the car was not a freestanding gift; it was a proposal made as part of wider employment termination discussions. If the offer could not be stripped of its context, nor could its acceptance.

The case was remitted to a fresh ET to consider whether there had been any oral agreement for transfer of ownership of the car reached at an earlier meeting.

What does this mean for employers?

This case serves as a reminder of the benefit of entering into settlement agreements to formally set out the terms on which a settlement has been reached. This can help to avoid disputes arising in the future as to what the final agreed terms actually are.

Similarly, it is important for employers to mark earlier written negotiations as "without prejudice and subject to contract" to ensure that only the contractual terms of the signed settlement agreement can be seen as final. The risk is that, where negotiations are not stated to be subject to contract, a party may seek to allege that an earlier offer has contractual effect. In these circumstances, there is a risk that the parties' perceptions of the final terms differ, causing a dispute later down the line.

This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact Siobhan Murphy to discuss any issues you are facing.