When is a Settlement Binding? Insights from Recent BC and Ontario Decisions

Many civil disputes (and almost all employment disputes) settle long before trial. Settlement terms are often exchanged quickly and sometimes by less formal means such as text or email. Based on these discussions, one or both sides may believe they have reached a deal. However, a settlement is only legally binding when the parties agree on the essential terms. But what is an essential term? Recent decisions from British Columbia and Ontario show how courts approach that issue differently.

These cases offer helpful guidance on what must be agreed to before a settlement becomes enforceable.

BC Decision: No Deal Without Agreement on a Key Term

In Brink v. Xos Services (Canada), Inc. (“Brink”), the B.C. Supreme Court found that no settlement had been formed because the parties never reached agreement on how the settlement payment would be treated for tax purposes.

The employer had offered a lump-sum payment that would be made with applicable deductions. The employee seemed to accept subject to a mutually acceptable release and payments being made in a tax-favourable manner. The employee response also requested a specific process for payment.

Employer counsel responded to say they would confirm the payment details with their client and advise when they had instructions. However, this never actually happened, and the employer instead sought to offer a lower settlement position.

The employee believed they had a deal from the original discussion and brought an application to enforce that deal. The application judge determined that the tax treatment of the payment of the settlement funds was an essential term that the employer had not agreed to, therefore, no settlement had been reached between the parties.

However, the B.C. Court of Appeal has now overturned that decision, finding that a binding settlement was reached.

The Court of Appeal held that tax treatment was not an essential term of the agreement in the circumstances, that the parties had already reached consensus on the core terms, including the settlement amount, and that the employer’s conduct objectively communicated acceptance. The employee’s request for a specific tax treatment did not amount to a rejection of the offer or a counteroffer. It was simply an additional request or suggestion for implementation of the agreed-upon settlement.

The appellate court emphasized that not every detail related to the performance of a settlement amounts to an essential term. The question is whether a reasonable observer would conclude that agreement had been reached on the fundamental elements of the bargain. On the facts in Brink, that threshold was met.

Ontario Decision: Settlement Upheld Despite Later Attempts to Add Terms

The Ontario Superior Court reached a different conclusion in Johnstone v. Loblaw (“Johnstone”), enforcing a settlement even though one party attempted to introduce new conditions after accepting the offer.

The essential terms were agreed to via email discussion. These included severance, legal fees, a reference letter, and mortgage-related confirmation. Plaintiff counsel reviewed the employer last offer and communicated acceptance “subject to mutual agreement on the supporting documentation” (i.e., the settlement documents and release).

After receiving and reviewing these documents, the employee sought to add terms to the agreement that had not previously been discussed. These were new, material terms (including reimbursement of various expenses and adjustment of the employee’s performance rating) and not in relation to the “supporting documentation”. The employer did not agree to these additions and sought to enforce the original settlement.

The Court held that the settlement was binding. The acceptance email showed a clear intention to finalize the agreement, and the additional requests raised later were not raised in the prior negotiation and were not related to the language of the settlement and release. These were entirely new and essential terms that ought to have been bargained earlier.

The Court generally takes the view that once the core bargain is settled, a party cannot step back simply because circumstances change, or they have second thoughts. Wanting to improve the settlement after the fact – even if understandable – does not undo an agreement that has been accepted.

Takeaways

Viewed together, Brink and Johnstone underline the central question at the heart of settlement law: have the parties reached consensus on the essential terms of their agreement. In Brink, the B.C. Court of Appeal held that disagreement on tax treatment did not defeat the formation of a settlement, because tax allocation was not essential to the underlying financial bargain. However, it is clear from the Court’s comments that this was a fact-specific determination and would not always be the case.

In Johnstone, the Ontario court likewise confirmed that a party cannot introduce new essential terms after acceptance in an effort to revisit the agreement. Taken together, these decisions reinforce that courts look to the core deal, not post-acceptance refinements or secondary performance details, when determining whether a settlement is binding.

Where essential terms are left vague or are treated as assumptions rather than subjects of express agreement, the risk of later dispute increases. Careful identification and articulation of essential terms at the negotiation stage are central to ensuring that a settlement is both enforceable and aligned with the parties’ expectations.

Practical Tips for Settlement Discussions

Clear communication is essential to avoiding disputes about whether a settlement has been reached. Parties should identify the key terms at the outset, including payment structure, tax treatment, legal fees, and the scope of the release. In many cases, it will be helpful to:

Keeping negotiation communications clear and organized reduces the risk of misunderstanding. Once the essential terms have been agreed, courts are generally reluctant to permit parties to revisit or renegotiate the settlement because of second thoughts or changing circumstances.

Conclusion

Settlements can resolve disputes efficiently, but only when the parties share a clear understanding of the essential terms. The recent decisions in Brink and Johnstone both underscore the same point: courts will enforce a settlement where the essential elements are agreed, even if secondary terms remain to be finalized.

If your organization is navigating a workplace dispute or negotiating a settlement, our Employment Group at Boughton Law can provide guidance to help ensure your agreement is clear, enforceable, and aligned with your goals.