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When Settlements go Wrong

One of the tools available to an employer when looking to resolve an employment relation problem, is to use mediation to reach a full and final settlement of the issues between the employer and employee.

Mediation can be a very useful tool as it involves an independent party, from the Mediation Services of the Ministry of Business Innovation and Employment (MBIE), who can help the parties work through their differences and reach an agreed settlement to their issues. However, if you are confident in your own abilities or if you use another independent party to help resolve the dispute, you can still formalise and make binding your resolution by filing a settlement agreement under s149 of the Employment Relations Act 2000, which is then certified by a mediator, making the agreement binding on both parties.

A s149 settlement means that you and your employee have agreed that the settlement resolves all employment issues between you. This also means the employee cannot then take a personal grievance on the issues that have been resolved. However, if you do not fully comply with the terms of your agreed settlement, then that may open you up to a further complaint and penalties being applied, as was the case in settlement between Skycity Management Ltd and a Mr Lumsden.

After issues arose in the employment relationship between Mr Lumsden and Skycity, they went to mediation and reached a settlement that was prepared and certified by a mediator under s149.

The settlement agreement included a number of clauses including one on confidentiality; one binding the parties to NOT make disparaging comments about each other; one leaving it open for Mr Lumsden to apply for future work with Skycity; and a statement that this was a full and final settlement of all claims between the parties.

The term that stands out in this case is the one that welcomed Mr Lumsden to apply for re-employment with Skycity in the future. Mr Lumsden availed himself of that option. However, when he applied for a position at Skycity Mr Lumsden was not successful. Mr Lumsden then found out, through an informal meeting, that Skycity's HR department had intervened in the recruitment process, advising that Mr Lumsden was noted in their HR system as "No" to re-hire.

Not surprisingly, Mr Lumsden raised a complaint in this regard. Skycity's response was that they had not breached the "welcome to apply for future jobs" clause of the s149 settlement. However, the Court found that Skycity had breached the "non-disparaging comments" clause of the settlement by maintaining Mr Lumsden's employment record with a "No" to re-employ comment. The HR System was also found to contain a comment by Mr Lumsden's former manager that stated "Outstanding performance issues, staff and customer complaints. Not a team player, major attitude change, became very difficult to manage as he wouldn't follow management's directions."

Mr Lumsden successfully argued that Skycity had failed to treat matters as finally settled under the s149 settlement. Skycity argued that the statements by Mr Lumsden's former manager were not disparaging as they were correct. The Court determined that a comment can be disparaging and still be truthful and that the comments, in this case, did breach the "non-disparagement" clause.

The Court agreed that Skycity had failed to treat matters as finally settled and that there had been a breach of the full and final settlement clause. Skycity was ordered to pay a penalty of $7500, with 75% going to Mr Lumsden and the rest to the Crown.

What this case tells us is to ensure that if you are going to settle a dispute, do not agree to clauses that you do not wish to be held to. We would recommend not to include a clause agreeing to future re-employment of a person who has exited under a s149 settlement. However, if you do agree to such a clause, and you also agree to a "non-disparaging comments" clause, make sure that you purge your HRIS and personnel files of any negative comments about the employee, otherwise these may come back to cost you in a complaint of breach of settlement.

If you need assistance to resolve an employment relationship problem, contact Tony McKone today for a free, no-obligation chat on how we can help you.

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