Unfair dismissal and settlement agreements; when are they binding?

It is quite common for an employer and an employee to reach an agreement to settle an unfair dismissal case at the conciliation conference and for one of the parties to then have a change of mind and seek to reneg on the deal before a settlement deed, embodying the settlement is signed. In what circumstances will the parties be held to their oral agreement made at the conciliation conference and witnessed by a Fair Work Commission conciliator.

Here is an extract from a recent decision of the Fair Work Commission which identifies the legal principles at play.

“The principles to be applied in making that assessment have been helpfully summarised by the Full Bench in Singh v Sydney Trains 7 as follows [Footnotes omitted]:

“[49] Ultimately the question is whether a “reasonable recipient of the acceptance would have regarded it as corresponding to the offer or whether they would have taken the acceptance to be 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”. Put another way, 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.

[50] A purported acceptance which does not correspond to the offer does not necessarily reject the first offer; it is, nevertheless, a counter-offer capable of acceptance. A counter-offer accepted by the original offeror creates a binding agreement.

[51] 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.

[52] The phrase “‘in principle’ agreement” or similar is often used when negotiating the settlement of litigation and generally indicates that there is no intention yet to enter into a binding contract. However, such words must be construed in the context in which they appear and the commercial setting in which the parties were operating. In each case, “much will depend upon the individual circumstances of each case as to whether those words demonstrate that the parties had or had not reached a consensus on the essential terms of their bargain and whether they intended to be immediately bound by them”.

[53] If parties who have been in negotiations reach agreement on terms of a contractual nature and also agree that those terms will be dealt with by subsequent formal documentation, there are several categories into which such negotiations fall. First, the parties reach finality, intend to be immediately bound, and propose restatement of the terms of settlement in a fuller or more precise form but not different in effect. Secondly, the parties have completely agreed all terms but performance of one or more terms is conditional on execution of a formal document. Thirdly, the parties did not intend to make a concluded bargain at all, unless and until they execute a formal contract. Fourthly, the parties intended to be bound immediately and exclusively by agreed terms while expecting to make a further contract in substitution containing, by concept, additional terms.

[54] When parties do reach an agreement of the first or fourth category referred to in Masters v Cameron and Baulkham Hills, they will be bound by the terms of their bargain, notwithstanding a later disagreement between the parties about the terms to be included in a deed or written agreement between them.”

The reference to Masters v Cameron is the High Court’s discussion in that case including as follows:

“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

In each of the first two cases there is a binding contract : in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document ; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. Throughout the decisions on this branch of the law the proposition is insisted upon which Lord Blackburn expressed in Rossiter v. Miller (1) when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, show that they continue merely in negotiation. His Lordship proceeded : “. . . as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed” (2) : see also Sinclair, Scott & Co. Ltd. v. Naughton (3). A case of the second class came before this Court in Niesmann v. Collingridge (4) where all the essential terms of a contract had been agreed upon, and the only reference to the execution of a further document was in the term as to price, which stipulated that payment should be made “on the signing of the contract”. Rich and Starke JJ. observed (5) that this did not make the signing of a contract a condition of agreement, but made it a condition of the obligation to pay, and carried a necessary implication that each party would sign a contract in accordance with the terms of agreement. Their Honours, agreeing with Knox C.J., held that there was no difficulty in decreeing specific performance of the agreement, “and so compelling the performance of a stipulation of the agreement necessary to its carrying out and due completion” (6): see also O’Brien v. Dawson (7).”  8

During the course of the 16 September 2018 meeting, the concept of the agreement being “in-principle” was not discussed. That term did appear in the email from Mr Badcock later that day and it was used by the MTA when contacting the Commission. If there was an agreement made during the meeting, I would not consider that the expression “in-principle” meant in this case that a binding agreement was not contemplated. This is the circumstances where the context indicated otherwise as contemplated in Singh v Sydney Trains. 9 Indeed, both parties have for the most part conducted themselves on the basis that a binding agreement was reached; albeit that they now have a different view as to what was intended.

In Zoiti-Licastro v Australian Taxation Office 10 (Zoiti-Licastro) the Full Bench of the AIRC was dealing with an appeal which involved consideration of a settlement which contained terms that included “mutual releases by both parties in the usual terms”. In that case, both parties were represented in the negotiations by Counsel and the Senior Deputy President at first instance expressly found that the appellant worker had agreed “to release the ATO from any liability arising from her employment …, save for personal injuries”.11 In dealing with that aspect, the Full Bench concluded:

“It is clear that the settlement agreement drafted by the ATO’s solicitors contained mutual releases and those had not been specifically agreed in the discussions on 3 March. There were other terms included as well, such as a request for confidentiality. But the appellant’s focus on the settlement document seems to us to miss the point. The real question is what was agreed on 3 March between counsel. It is clear enough that a completed agreement was reached and that it was not conditional in any sense on an agreement being signed. Terms relating to mutual releases and confidentiality could hardly be said to be unusual. Even so, if they were objected to the proper course would be for the appellant to simply indicate that they were not part of the agreement. No such indication was given, at least not until after 31 March 2005.” 12

In this matter, the parties were not represented in the 16 September discussions and the discussion about the terms of the settlement was more limited. The concept that the MTA would provide some documentation was not expressly agreed as a condition and based upon the evidence before the Commission it is not clear whether the likely terms of such a deed would have been understood by the applicant without a discussion of its terms. I do not consider that if any agreement was made on 16 September 2018 it was subject to (conditional upon) a deed being provided and agreed. I also do not consider that Mr Badcock’s email of 16 September 2018, or the two versions of the deeds themselves, subsequently became the agreement between the parties. In the case of the email, the response from Motor Search in the form of the deed went beyond the “offer” represented by that email. In the case of the deeds, the first was expressly rejected and neither was accepted by Mr Badcock at any point. The email (or the deeds) may of course have been a proper reflection giving effect to, and confirming, an existing agreement and I will shortly return to this aspect.

On that basis, there is no agreement of the nature contemplated in the second, third and fourth examples outlined in Singh v Sydney Trains. This leads me to consider whether there was a binding agreement reached during the discussions on 16 September 2018 of the first kind outlined in that decision; namely, the parties reach finality, intend to be immediately bound, and propose restatement of the terms of settlement in a fuller or more precise form, but not different in effect.

The best evidence about whether the parties intended to enter into a binding agreement, and what its terms may have been, is the evidence of Mr Cooper and Mr Badcock about the actual discussions on 16 September 2018, including the context for that meeting, and their subsequent conduct.

I am satisfied that both parties intended to make a binding agreement and proposed restatement of the terms of settlement in a fuller or more precise written form, which was not to be different in effect. That is, the payment of $8,000 to be paid by the respondent within 24 hours was intended to resolve the matter and enable the parties to move on. As confirmed in the evidence, details as to how the payment might be made and supplementary conditions such as confidentiality could be contained in the “fuller and more precise” form of a written confirmation; that is, in a deed reflecting the agreed terms.

This view is entirely consistent with the conduct of the parties including the communications made by them immediately after the meeting. Both have also (until the making of the request to relist the unfair dismissal matter) conducted themselves as having reached an agreement but with some of the ancillary detail to be confirmed.

The questions as to the intended scope of any agreement (whether it contemplated resolving all matters and potential claims between them – a complete release – or only the unfair dismissal matter) and whether in fact and in law there was an agreement made, also need to be considered and determined. Both parties have advanced partially different factual contentions and significantly contrasting propositions in this regard.

Motor Search contends that following the FWO conciliation, the applicant would have had no expectation of an underpayment of wages claim and this is consistent with the view that the parties were seeking to resolve all matters in the context of the payments proposed by each. Further, it had also understood that its offers were for a complete release and the notion that both parties had intended to “move on” as a result of the 16 September 2018 meeting was consistent with such an outcome. Motor Search also contends that the decision by Mr Badcock to lodge the underpayment of wages claim represented a change of mind after the agreement was made. In that regard, it notes that Mr Badcock did not articulate the reason why the proposed deeds were unacceptable until after the matter had been relisted by the Commission.

Mr Badcock contends that the outcome of the FWO conciliation was different and that he always considered that he could subsequently make an underpayment of wages claim. In that light, he was only ever interested in settling the unfair dismissal matter and that this was the only subject of the negotiations. The concept of the parties moving on arose in the context of avoiding the upcoming unfair dismissal hearing and was not an indication that the parties would have no further litigation. In terms of the deeds, Mr Badcock contends that he immediately advised that the deed was inappropriate and that as he had not sought or agreed to a deed, he did not need to engage in discussions about its terms; but rather, was insisting upon the agreement as outlined in his email of 16 September 2018.

Although I have reached a different view about the formation of a binding agreement, in general terms I accept the position of Mr Badcock about these particular elements.

It is common ground that the proposed scope of the settlement was not expressly discussed in the 16 September meeting and there is insufficient evidence about the earlier discussions to make any findings as to whether there was an expressed confirmation of the scope of any offers prior to the meeting.

When viewed objectively, the only litigation that was on foot was the unfair dismissal matter and there had been no indication by the time of the 16 September discussion that Mr Badcock was actually going to make an underpayment of wages claim; noting that Mr Cooper considered that the issue was dealt with as a result of the views expressed by the FWO in the conciliation. There was also no discussion about any potential underpayment of wages claim in the 16 September 2018 meeting. The immediate communications from the parties was that there was a “full and final settlement” (Mr Cooper) and that “upon receipt of the $8,000 by me, I will advise the FWC that the unfair dismissal matter had settled” (Mr Badcock).

It is a reasonable objective understanding that the parties were meeting to resolve the unfair dismissal matter. Although Mr Cooper may have had a broader intention associated with his offer, as he accepted in his evidence, this was not communicated in the meeting concerned, and whilst the MTA, acting in the interests of Motor Search, drafted a broad deed of release, this was not in my view reflective of the agreement reached between Mr Cooper and Mr Badcock on 16 September 2018. Mr Badcock’s email later that day actually recorded the substantive terms of the agreement made.

I consider that the terms of the resolution had sufficient certainty and that objectively the parties were ad idem on the essential terms.

  1. Conclusions and Orders

On balance, I find that the parties entered into an agreement to settle the unfair dismissal matter on 16 September 2018 that was intended to be immediately binding. Its terms were enforceable and there was a proposed restatement of the terms of settlement in a fuller or more precise written form that was not to be different in effect.

This is the form of resolution that has been found by the Commission and its predecessors to represent a settlement that has the result of impacting upon the capacity of an applicant to continue to advance a matter of this kind.

This finding has two immediate consequences. The $8,000 is due and payable by Motor Search to Mr Badcock on the terms agreed between the parties. Secondly, the discretion in s.399A to dismiss the unfair dismissal matter arises.

Given the settlement, and the confirmation given by Mr Cooper during the proceedings that the payment would be made if an obligation to do so was found, I consider that it is fair and appropriate to exercise that discretion.

Accordingly, an Order 13 dismissing the unfair dismissal matter is being issued in conjunction with this decision.”

Badcock v N & HM Cooper Motor Search (SA) & Car Clearance Centre (SA) T/A Motor Search (2018) FWC 6978 delivered 26 November 2018 per Hampton C