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

Any contractual settlement, like any other legal arrangement, can be affected by mistakes or misunderstandings between the parties. The pressure to reach an agreement can sometimes result in one or both parties misunderstanding the terms or implications of the settlement.

Depending on the nature of the mistake, there may be different consequences for the validity and enforceability of the agreement. Understanding these distinctions is therefore important for both employers and employees.

Contract law generally recognises three categories of mistake, as set out below:

• Mutual Mistake - occurs where the parties are at cross-purposes because they have different understandings of a material aspect of the agreement. In some circumstances, if the misunderstanding is fundamental, there may be no binding agreement because the parties have not reached agreement on the same terms.
• Common Mistake - occurs where both parties share the same mistaken assumption about an existing fact or circumstances fundamental to the agreement. In limited circumstances, a sufficiently fundamental common mistake may affect the validity of the agreement.
• Unilateral Mistake - arises where only one party is mistaken about a material matter, while the other party knows or ought reasonably to know of the mistake. Setting aside an agreement on this basis can be difficult and will depend on the circumstances, including the nature of the mistake and the other party’s knowledge or conduct.

Challenges in Setting Aside Settlement Agreements

There are strong public policy reasons why courts and tribunals are reluctant to set aside settlement agreements because of mistakes. The legal system encourages parties to resolve disputes by agreement, and there must therefore be a degree of certainty that settlements will be upheld. Parties are generally expected to understand the agreements they enter into, particularly where they have received independent legal advice.

It may sound obvious, but the best way to deal with mistakes in settlement agreements is to identify and resolve them before the agreement is signed.

At Gannons, our employment team advises both employers and employees on settlement agreements, helping them understand the terms, identify potential issues and reduce the risk of mistakes.