A Full Bench of Fair Work Australia has allowed an employee to pursue his claim for unfair dismissal despite agreeing to settle the dispute with his employer outside of court. The decision in Brent Gorman v Australia Post [2010] FWAFB 9413 indicates the need for employers to exercise caution in settlement negotiations.

The facts

Mr. Gorman, having been employed by Australia Post for twenty years, as dismissed for misconduct in 2009. He lodged an unfair dismissal claim with FWA, which was heard on 6 April 2010. Both parties were legally represented at the hearing.

During the hearing, settlement discussions between the parties ensued. The discussions were apparently successful, with Mr Gorman’s legal representative advising FWA upon the resumption of proceedings that there had been an agreement that the matter would be settled, with a written agreement (in the form of a Deed) to follow within fourteen days. The hearing was adjourned to allow the written agreement to be drafted and executed. Crucially, there was no notice filed with FWA to discontinue the hearing. After several weeks, and having received the proposed Deed from Australia Post, Mr Gorman applied to have the matter re-listed for hearing.

The legal positions and evidence

It was Australia Post’s contention that FWA should dismiss Mr Gorman’s application, because it was frivolous or vexatious, in light of the settlement agreement.

Unsurprisingly, Mr Gorman and Australia Post provided different accounts of the settlement discussions, and the effect of those discussions. Australia Post contended that all terms regarding settlement had been agreed upon, including a termination payment, discontinuance of the matter, the substitution of resignation for termination, non-disparagement and confidentiality. Australia Post’s legal representative gave evidence that during the settlement negotiations, he had specifically stated that this oral agreement would be binding and the written agreement would only record the terms, saying “we’ve got a deal”.

Mr Gorman argued that only the payment and substitution of resignation for termination were agreed upon, during those settlement negotiations. He also seemed to recall some general discussions regarding confidentiality. Mr Gorman refused to sign the Deed on the terms proposed.

Initial success for Australia Post Mr Gorman’s application was dismissed at first instance by FWA, which accepted the evidence of Australia Post about the formation of the settlement agreement. Mr Gorman’s wish to proceed with his claim for unfair dismissal was held to be contrary to the terms of a binding agreement to settle, and was therefore vexatious and an abuse of process.

Decision overturned on appeal

Mr Gorman successfully appealed the initial decision.

The Full Bench held that Mr Gorman’s application for unfair dismissal was not “frivolous or vexatious”. They noted that it had not yet been determined whether his dismissal from Australia Post was harsh, unjust or unreasonable.

The Full Bench concluded that because a notice of discontinuance for the matter had not been filed, and the parties had indicated to FWA on the first day of hearing that there was likely to be some “toing and froing” in the negotiation process for settlement, it was unlikely that a binding legal agreement was created on that day. They instead characterised this as an ‘agreement to agree’, which is never legally binding.

Because the agreement between the parties was held not to be binding, Mr Gorman was entitled to pursue his claim for unfair dismissal.

Lessons for Employers

Clear and unequivocal agreement on all of the terms of settlement of an unfair dismissal application will assist in showing that trying to back out of the deal and continuing with proceedings is frivolous or vexatious.  

Where possible, set out all terms of settlement by drafting “Heads of Agreement”, and have both parties sign the document, even if a more formal deed or release agreement is to be executed later.