Employment Settlement Agreements - what is the impact of a mistake?

Any contractual settlement (like any other legal arrangement) may be susceptible to mistakes by the parties. There is likely to be pressure on both sides to reach agreement, which can lead to misunderstanding by one party or the other - or occasionally both.

Depending on who is in the wrong, there will be different consequences on the enforceability of the eventual agreement. Understanding these nuances is essential for both employers and employees.

Lawyers will speak about three distinct categories of mistake, as set out below :-

• Mutual Mistake - occurs when both parties share a misunderstanding about a material fact. · Assuming the mistake goes to the root of the agreement, the agreement will be void from the start as there has not been a “meeting of the minds” to form the contract in the first place.
• Common Mistake - involves a mistake shared by both parties, but not necessarily arising from a shared misunderstanding. For example, it could involve a matter about which there was no way of verifying the truth at the time the agreement was formed. · Its impact on the settlement agreement depends on the nature and significance of the mistake. · Common mistake may be grounds for setting aside the agreement, especially if it frustrates the purpose of the settlement.
• Unilateral Mistake - arises when only one party is mistaken about a material fact. · More challenging to set aside an agreement based on unilateral mistake – such an order would typically require the mistaken party to demonstrate unconscionability, misrepresentation, or some other factor affecting fairness in letting the agreement stand.

Challenges in Setting Aside Settlement Agreements

There are obvious public policy reasons why the courts are reluctant to set aside settlement agreements on the basis of mistakes by the parties. The tribunal system, ACAS and the rest are designed to encourage settlements rather than to pull them apart. Parties are generally speaking taken to have understood the agreement that they are entering into. This is particularly the case with employment settlement agreements, where both sides will usually be legally represented.

It may sound glib, but by far the best way of dealing with mistakes in settlement agreements is to avoid them in the first place.

At Gannons we have a dedicated employment team who are capable of advising employers and employees alike on settlement agreements.