If you make a mistake in someone's employment contract are you bound to honour it?

Consider a situation where an employer makes a drafting mistake on an employee's contract, like adding an extra zero to their salary. Trent Sebbens, Partner at Ashurst, discusses what employers should be aware of if such a scenario eventuated.

It is critical that an employment contract accurately capture in writing the terms and conditions of employment agreed between the employer and employee. The starting point is that a party will be bound by the terms of a contract, irrespective of whether they read or understood them. There are, of course, exceptions to this. It sometimes happens that an employment contract contains errors. Whether an employer is required to honour a term in a contract containing an error will depend on the circumstances that led to the error.

The law of contracts concerning "mistakes" applies to employment contracts. There are two primary categories of mistakes:
•    "common mistake" - where the employer and the employee are in agreement about the terms of the contract, but the written document does not express the agreement correctly; and
•    "unilateral mistake" - where one party mistakenly believes the agreement has been accurately recorded in the written document, while the other party knows of the mistake and acts unconscionably in relation to it.

A typographical error not identified by the parties prior to signing, such as adding an extra zero on the salary amount, would be an example of a "common mistake".

Rectification – common mistake

A court has power to grant "rectification" of a contract so that it properly reflects the common intention of the parties.

An employer seeking to rectify a contract will need to prove to the court that:
(a)    the parties had agreed to the term prior to recording the agreement in writing
(a)    the parties in preparing the employment contract did not correctly express their agreement in the terms of the written document
(b)    during the time after the term was agreed until the time it was put in writing, it was the continuing intention of the parties that the term was as agreed; and
(c)    if rectified in the way sought, the written contract would give effect to the common intention of the parties.

An employer claiming that there has been an error in the written terms of the contract will bear the burden of proving the error. The employer will need to demonstrate, in particular, what was the common intention of the parties.

This may be able to be established by pre-contractual correspondence and evidence of the responsible officers involved in negotiating and entering into the contract.

Most importantly, the court will be need to be satisfied that the objective common intention of the employer and employee endured for the time from agreement of the term, through to the time of both parties signing the written contract. Where there is a simple error in recording the terms, and the mistake is obvious, the court will likely be satisfied by tracing through the pre-contract communications to the mistaken term. Where there is a real dispute between the parties about the alleged mistake, obtaining rectification will be more difficult. It will simply not be available if there was no common intention.

Unilateral mistake

Rectification may also be available for "unilateral mistake", however there is a heavy burden to obtain rectification in those circumstances.

The party seeking relief will need to establish that one party knew of the other's mistake, and the party who knew of the mistake engaged in some form of unconscionable conduct (such as not drawing the error to the attention of the mistaken party, or consciously intending to deceive the other party). Proving these elements in order to obtain rectification is difficult.

Alternatives to rectification

For simple errors, the most efficient and practical way to deal with them may be to bring the mistake to the attention of the employee and attempt to reach agreement to correct the mistake in the written document. This approach would avoid unnecessary time and costs involved in formal dispute resolution processes.

It is also possible that errors are able to be resolved by a proper construction of the terms of the agreement when read as a whole. In those cases, no rectification would be required and a court could simply determine the proper meaning of the term.

To avoid being caught in a conundrum of "that's what it says, but not what we meant", it is critical that the agreed terms and conditions are carefully recorded in writing with a close eye on the details – so that an extra zero does not become a costly mistake.

This article was contributed by Trent Sebbens, Partner at Ashurst


This story originally ran on July 28, 2017