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Settling employment disputes by termination

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 Andrew Steele.


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