By Andrew Steele - 31 Jul 2015
Employers and employees commonly settle serious employment
relationship problems by agreeing to go their separate ways. Often
these settlements include a payment to the employee in exchange for
their commitment to ongoing confidentiality and a restraint of
trade. Parties have the option of getting the settlement
agreement signed off by the Ministry of Business, Innovation and
Employment's Mediation Service. There are advantages and
disadvantages in doing this.
If 'sign off' is obtained, the Employment Relations Act deems
the settlement to be final and binding on, and enforceable by, the
parties. And its terms may not be cancelled, except for enforcement
purposes. Further, neither party may seek to bring its terms
before the Employment Relations Authority or Employment Court,
whether by action, appeal, application for review or otherwise.
However, there is a catch. A 'signed off' agreement may
only be enforced by Authority compliance order and/or the
imposition of a monetary penalty - not by the award of damages for
breach of contract. And penalties are capped at $10,000 for
individuals and $20,000 for companies. There is also no
guarantee that the enforcing party will receive any of this.
The alternative to mediator 'sign off', is simply to have a
private settlement contract. The Court of Appeal in JP
Morgan Chase Bank v Lewis recently considered this form of
settlement and confirmed that it could not be enforced in the
Employment Authority or Court. This meant that the agreement
must be enforced in the non-employment courts like any other
contract. An important consequence, arguably 'benefit', of this is
that the parties' rights to claim damages for breach of contract
are preserved.
The important point for employers and employees is that they
need to consider carefully how they might wish to enforce their
settlement agreement before they opt for one form of settlement
over the other.
If you would like to discuss the pros and cons of obtaining
'signoff' or any other employment issues contact our employment
law team.