It is important to be clear on the rules when engaging in settlement discussions
Settlement discussions are an important component of any employment law dispute. As most lawyers will tell you, the vast majority of claims settle prior to trial. In many cases, an employee’s counsel will send a demand letter to the employer before filing a lawsuit, with a view to engaging in early settlement discussions. Many claims are settled before litigation is even commenced.
During settlement discussions, we are often asked about the “rules” are for exchanging offers: When can an offer be withdrawn? Can an offer be accepted after it has already been rejected? What happens to an offer if the other side makes a counter-offer? The answers to these questions are important to know for anyone engaging in settlement discussions.
Pre-litigation settlement offers
A different set of rules apply to settlement offers depending on whether or not they are made within the context of ongoing litigation. Ongoing litigation means that a party has commenced a lawsuit in the courts by filing a pleading, and that the lawsuit has not yet been disposed of by way of a trial or other judgment.
When there is no ongoing litigation, the common law rules respecting contracts apply to offers to settle. This applies to pre-litigation settlement discussions, in which parties attempt to settle their dispute before filing a lawsuit with the courts. This also applies after there has been a trial and one of the parties is appealing the Judgment.
Under the common law rules, a rejection of an offer “kills” the offer. An offer cannot be subsequently accepted after it has already been rejected. Similarly, a counter-offer “kills” the original offer. A counter-offer has the same effect as a rejection of the original offer, and the original offer can no longer be accepted unless it is made again by the party that originally made it.
On the other hand, while an offer can generally be withdrawn by the party making it, the common law provides that an offer that is “irrevocable” before a certain deadline cannot be withdrawn earlier.
Settlement offers during litigation
Where there is ongoing litigation, offers to settle are governed by Rule 49 of the Rules of Civil Procedure. This provides that where one party rejects an offer to settle, or responds with a counter-offer that is not accepted, that party can still thereafter accept the original offer. That means that rejecting an offer does not “kill” that offer. It can still be accepted even after it has been rejected.
On the other hand, rule 49 provides that an offer can always be withdrawn by the party that made it. This can be done by including a time limit in the offer, after which the offer will automatically be withdrawn. It can also be done by withdrawing the offer in writing at any time before it is accepted. An offer that has a time limit can also be withdrawn before that time limit has passed.
A litigant can even withdraw an offer where the offer was stated to be “irrevocable” before the time limit passes.
Enforcement of an accepted offer
It is important to note that once an offer has been accepted, the parties have reached a settlement. This is the case whether or not formal documentation or a release have been finalized.
The courts have ruled that even when there is a dispute between the parties as to the wording of the formal settlement documentation or a release, there is still an enforceable settlement if there is an accepted offer to settle on all of the essential terms of the dispute.
If an offer to settle has been accepted, but one of the parties refuses to comply with the settlement (for example, by refusing to sign a release or by failing to make the required settlement payments), the other party may do one of two things:
- The party may bring a motion to a judge for judgment in the terms of the accepted offer; or
- The party may treat the settlement as being at an end, and continue the proceeding as if there had been no accepted offer to settle.
The legal rules surrounding offers to settle are only one part of the equation. While it is common for parties to a dispute to be anxious about the other side withdrawing their offer, in practical terms that is unlikely to occur. For example, we are routinely asked by dismissed employees whether the employer will withdraw their severance offer if the employee tries to negotiate a better deal. As we always say, they could do so, but it is extremely unlikely.
That is largely due to the fact that the employer will presumably know that they will ultimately have to pay the amount they offered, or more. A party that has made an offer probably had a good reason to make the offer, and unless their circumstances drastically change, they will likely want that offer to be accepted.
Nonetheless, it is important to be clear on the rules of offers to settle when engaging in settlement discussions. If you are unsure about how these rules may affect your situation, we recommend speaking with a lawyer.
Alex Minkin is an employment lawyer at Rudner Law in Toronto.