Settlement Agreements: Essential Terms and the Importance of Consensus
A recent decision of the Supreme Court of Newfoundland and Labrador, Mifflin v North Atlantic Refining Limited, 2017 NLTD(G) 140, demonstrates that Employers may be held to a settlement agreement if a consensus is reached on its essential terms, despite there being a continuance of a dispute as to its non-essential terms.
Glenn Mifflin (“Mifflin”) was a senior executive of North Atlantic Refining Limited (the “Employer”) for a period of 25 years, from 1988 to 2013. In January 2013, following a change in ownership, Mifflin was terminated without cause. Throughout 2013, the parties attempted to negotiate a settlement agreement and by mid-December had agreed upon several key terms, including a lump sum payment in lieu of notice, an effective retirement date, the necessity of a Release, and the conversion of unused vacation time to cash. Just prior to the December 17th deadline for settlement, there was a breakdown in negotiations, which was precipitated by the parties’ failure to agree on the amount of vacation pay owing. Although Mifflin had reluctantly accepted the Employer’s position on the amount owing by the morning of December 18th, the Employer refused to finalize the agreement when such acceptance was communicated following the expiry of the deadline.
Mifflin commenced an action against the Employer, seeking specific performance of the settlement agreement or, alternatively, damages for wrongful dismissal. Mifflin also claimed damages for bad faith on the basis of the Employer’s conduct in refusing to complete the agreement and in forcing him to engage in lengthy litigation. At trial, the Employer argued that the settlement agreement had not been finalized on account of two outstanding items: the calculation of vacation pay and the form of the Release.
The Court considered whether the parties had reached a consensus as to the core elements of the settlement agreement, finding that an agreement had been reached on all of its essential terms prior to the deadline. In doing so, the Court distinguished between essential terms and terms which go to the completion of an agreement, finding that the calculation of vacation pay and the provision of an appropriate Release were non-essential completion terms. As such, the Employer could not repudiate the agreement on the basis of these two items.
The Court also addressed the issue of whether the Employer demonstrated bad faith, finding that refusing to complete a settlement agreement and forcing someone into litigation fell short of bad faith. The Court did, however, take the Employer’s conduct into consideration in assessing costs, noting that the litigation was unnecessary because the terms previously agreed to by the parties were those eventually upheld at trial. As a result, the Court held that Mifflin was entitled to solicitor and client costs.
Lesson for Employers
When negotiating a settlement agreement, it is important for Employers to be mindful as to whether the parties have reached a consensus on its essential terms. If the core elements of an agreement have been settled, then its terms are legally enforceable and refusing to finalize the agreement may lead to unnecessary litigation and, in some circumstances, an enhanced award of costs against the Employer. It is therefore important for Employers to agree to essential terms during settlement negotiations only if they are certain that they are satisfied with the compromise. Additionally, Employers are cautioned against strict reliance on what may be challenged as arbitrary deadlines in deciding to walk away from settlement negotiations.