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Breaching Settlement Agreements

Published 21 May 2023

Settlement Agreements are commonplace when it comes to resolving employment relationship problems, and the solution often benefit both parties and give certainty over where a dispute ends up. Namely, that it does not proceed into a litigation process. However, when a party breaches their obligations under a Settlement Agreement, then it's often not the end of the angst and the Employment Relations Authority (ERA) may be called on for enforcement and compliance action. Penalties of breaches of settlements can be up to $20,000.00 to businesses and $10,000.00 for individuals for each breach.

Settlement Agreements are legally binding documents, which are made to be honoured. These documents have the statutory protection afforded by s149 of the Employment Relations Act 2000 (the Act), and once all parties have signed it, and further that the document has been certified by a Mediator from MBIE. Following that, then the terms of settlement are biding and enforceable under the Act.

It's not just the dollar figures which are important in a Settlement Agreement either. Most Settlement Agreements will have both a confidentiality clause and a non-disparagement clause designed to protect both parties. These types of clauses are permanent, ongoing in effect, and are important and enforceable.

If we look at case law and ERA decisions around this subject it's quickly seen that more often than not parties will often pay the agreed monies within the relevant timeframes, but often transgress on other terms namely the non-disparagement or confidentiality provisions.

When parties have to revert to the ERA for enforcement of terms it can serve to negate a major point of a Settlement Agreement being that it is private and out of the public eye.

One case of interest was that of Levchenko-Scott v. Presbyterian Support Central Charitable Trust [2020] NZERA 452 (PSC). Following a settlement and the parting of the ways the ex-employee failed to secure three roles where provisional offers had been made then subsequently withdrawn after speaking to PSC. After cross examination from the ERA they submitted that when asked by the inquiring prospective employer whether they would re-employ Levchenko-Scott they had answered "no" and detailed a failure "to align with the organisation's values".

The ERA consequently decided that such a remark could only be construed as a disparaging remark and as such awarded against PSC. Each incidence considered a separate offence, so from a maximum of $60,000.00 following a series of reductions, including ability to pay including the fact that at that point PSC being $4m in deficit and ending up at $10,800.00 awarded.

Breaching settlement terms does work both ways. The ex-employee also has to heed the Settlement Agreement terms also, and the ERA does commonly enforce the same, albeit with a lower award ceiling.

In the case of Victoria University against a former employee, following a settled exit the ex-employee Dr Caroline Sawyer (senior law lecturer) decided it was ok to send five staff and related parties emails accusing other staff of dishonesty, professional incapability and impropriety. The ERA and subsequent Employment Court hearing didn't agree and awarded $8,500.00 against her.

So, when it comes to Settlement Agreements, rest assured all the provisions do matter and are enforceable by either party. In the case non disparagement it's best policy to avoid all conversations to third parties, unless explicitly covered and agreed content is provided for in the terms. The ERA will often award penalties, and also compliance action and costs.

When entering into a Settlement Agreement we strongly suggest you seek advice or support on drafting appropriate terms because once signed, the document cannot be changed unless both parties agree to vary these original terms. It is therefore very important that any terms of settlement are drafted carefully & clearly, so there are no future disputes on interpretation matters arising under the Settlement Agreement.

If you need assistance with drafting, negotiating or lodging comprehensive and enforceable Settlement Agreements contact us for help.