It is prepared to honour his share options, which are worth around pounds 1.7m.
Sources close to the company say it will only pay a few months' salary in compensation for loss of office. It is believed that if Lord Young takes legal action to pursue his claim, Cable & Wireless is prepared to see him in court.
However it is unlikely that the Government's former trade secretary would risk the damaging publicity of a high-profile court case. The company declined to comment yesterday.
The row marks a new low in relations between the company and Lord Young who, along with former chief executive James Ross, was asked to stand down last month after a power struggle between the two threatened the group's stability.
Lord Young has always said he had no contract with Cable & Wireless and the company says this is clearly stated in its annual accounts. However, Lord Young's claims appear to rest on a letter thought to have been signed by Lord Sharp, the group's former chairman who died last year.
Cable & Wireless refuses to acknowledge the existence of any such letter, only repeating that Lord Young had no service contract with the group.
In addition to his share options, Lord Young is thought to be claiming pounds 800,000 in salary and pension entitlements until February 1997, which had been previously set as his leaving date.
The company says no negotiations are taking place with Lord Young. It added that he had appeared briefly in the office last Friday but only to clear his desk and that he would not be coming in again.Reuse content