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Settlement Agreement

In order to resolve employment relationship problems under section 149 of the Employment Relations Act 2000 at the request of the parties a mediator from the Ministry of Business, Innovation and Employment (MBIE) can certify agreed terms of a Settlement Agreement. This process ensures any settlement agreement is full, final and legally binding on the parties.

Settlement agreements offer employers and employees the opportunity to bring finality and closure to an employment relationship problem, and the ending of such problems on agreed terms. This can be arranged without a formal Mediation process through the MBIE taking place.

What usually occurs following the establishment of an employment relationship problem is that there are settlement negotiations made on a 'without prejudice' basis in order to preserve the positions of both parties and to ensure the negotiations are confidential. There are important rules around setting up a protected without prejudice conversation in order to ensure that everything discussed and/or exchanged remains 'off the record' and unable to be referred to in any subsequent litigation process.

The 'without prejudice' part is paramount, take a moment to read our article on this if you are unclear on this:

Once the key terms and conditions of the settlement agreement have been negotiated, e.g. how the employment relationship is ending, return of company property, severance payments, certificate of service, post-employment obligations, etc and both parties have signed the agreement, then it needs to go through final lodgement process through MBIE. This involves the settlement agreement being allocated to a mediator from MBIE who will explain the effect of certifying to the parties. This means the settlement agreement will be treated as full and final, binding and cannot be brought before the Employment Relations Authority or Employment Court except to enforce the terms and conditions of that particular agreement, or seeking penalties for a breach of that agreement.

Employers Assistance has a standard settlement agreement template available, which makes provision for all the standard matters typically dealt with via such agreements, including practical guidance commentary to help the employer prepare the agreement. We also have a template without prejudice letter which can be used for setting up a without prejudice discussion properly.

If there is a consideration involving money a strong incentive for the employee is that such money can be 'tax free' if paid and accepted under s 123(1)(i) of the Employment Relations Act 2000. Such payments can usually not exceed guided limits set by the IRD. Caution should be exercised by employers when paying large sums under this head.

Settlement agreements provide a degree of certainty to employees and employers. They can avoid the possibility of being unsuccessful in claims before the Employment Relations Authority and Employment Court where the employee or employer may be required to contribute towards legal costs. Settlement agreements avoid the endless delays, stress, and publicity involved in the matter proceeding to the employment institutions.

Under the Employment Relations Act 2000, there are penalties for the breach of Settlement Agreements which can be useful where the terms of the Settlement Agreement are not being adhered such as a failure to return property, failure to pay money owed, breach of confidentiality, or non-disparagement obligations, etc.

Employers Assistance's Settlement Agreements put the employers in the best position to avoid such problems and our team can guide you through any aspect associated with them, including arranging the lodgement process (if required).
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