Settlement agreements may sound like the answer to all your problems as an employer, but getting to settlement, and ensuring that you can rely on the settlement, may be trickier than you think. For example, it’s easy when dealing with an employee who doesn’t have a representative to press on with settlement without necessarily giving the employee a reasonable period of time to consider the terms and conditions being offered and/or to take advice. It is important to be aware that an employee may be able to challenge the validity of a settlement agreement if he/she hasn’t had a reasonable opportunity to take advice before signing and therefore, if the employee wants to waive that right, that should be reflected in the terms of the agreement to protect you and your business moving forward.
Another issue that is more common than you might expect occurs when an employee signs a settlement agreement but changes his/her mind before the agreement is signed off by a mediator. In that situation, do you still have a binding agreement? The answer is no if the agreement requires sign off by a mediator. In that situation sign off by the mediator is a necessary precondition to settlement.
A recent Court of Appeal case has highlighted further difficulties in settlement; this time highlighting the important differences between private settlement agreements (signed only by the parties) and settlement agreements signed by a mediator employed by the Ministry of Business, Innovation and Employment (‘MBIE’), which parties to employment disputes need to consider.
While settlement agreements signed only by the parties are still binding, a settlement agreement signed by a mediator has additional clout. This is because the Employment Relations Act 2000 provides for an optional additional process to be followed by the mediator, which makes breaches of a settlement agreement enforceable in the employment jurisdiction. The mediator contacts each of the parties to the agreement to ensure the parties are aware the settlement is final, binding and enforceable, then signs the settlement agreement. The effect of the mediator’s signature is to make the settlement final, binding and enforceable. It means that no action may be commenced in respect of the terms of the settlement agreement, apart from enforcement. While there is scope for debate about what sorts of actions might be brought in respect of a settlement agreement, it is fair to say that settlement agreements signed by a mediator achieve greater finality. Settlement agreements signed by a mediator may be enforced via the Employment Relations Authority, and penalties are available for parties who breach such a settlement agreement. The most common breaches are breaches of confidentiality provisions.
of settlement agreements was considered recently by the Court of Appeal, in a case involving JP Morgan Chase Bank NZ and its former employee, Mr Lewis. In that case, the parties had signed a settlement agreement, but did not get a mediator to sign it.
The employee alleged his former employer had breached the settlement, and attempted to bring proceedings in the Employment Relations Authority seeking damages for breach of the settlement. The Court of Appeal found the Employment Relations Authority had no jurisdiction to consider a claim for damages for a breach of a settlement agreement that was not signed by a mediator, as the settlement agreement was not a settlement agreement signed under section 149 of the Employment Relations Act 2000, nor was it an “employment agreement” or a variation to an employment agreement within the meaning of the Act. It said that any claim for damages would need to be commenced in the courts of ordinary jurisdiction. It also meant that the settlement agreement could not be enforced in the Employment Relations Authority.
By way of contrast, had the settlement agreement been signed by a mediator pursuant to section 149 of the Act, a claim for enforcement could be commenced in the Employment Relations Authority and penalties would be available for any breaches. However, the current law is that it is not possible to claim damages in the Employment Relations Authority for a breach of a settlement agreement signed by a mediator¹.
If you get a mediator to sign a settlement agreement, it will make it harder for parties to unravel that agreement, but could also make it harder for parties to claim damages for breach of a settlement agreement. Penalties are still available for a breach of a mediated settlement agreement, but these are restricted in quantum to up to $10,000 for individuals and $20,000 for corporations. On the other hand, if you don’t get a mediator to sign a settlement agreement, the agreement could be easier to unravel, but damages will be available for a breach of that settlement agreement, although any claim would need to be brought in the courts of ordinary jurisdiction. While settlement agreements may seem like a simple end to your issues, it is worth taking the time to get them right and ensure they provide the protection you seek.
¹ South Tranz Ltd & Ors v Strait Freight Ltd