A settlement agreement can be the end result of mediation though that is not always the case. There are times when both parties agree to draw an end to the dispute and move on. This is often accompanied by payment of a sum of money and a promise that the matter will remain confidential and that neither party will speak badly of the other. Whether the agreement is achieved privately or following the formal mediation process it is essential to have a mediator from the Ministry of Business, Innovation and Employment sign off on the settlement.

The mediator will certify the settlement agreement by explaining to each party involved that the terms are final and binding and enforceable. The agreement cannot be cancelled under the Contractual Remedies Act 1979 and, no further action can be taken except and unless that action is to enforce its terms. Having affirmed their understanding of these matters the mediator signs the document.

However, human nature being what it is one party may settle the grievance and go out into the community and open their mouths when they are legally obligated to keep them shut. Which party is more likely to breach the settlement agreement remains unclear. Case law suggests that both employees and employers have crossed the line and ended up paying for it during a visit to the Employment Relations Authority or Employment Court.

Former employees have certainly been known to breach settlement agreements. One such breach involving quite casual comments is found in the 2011 matter of Henry v The Warehouse.

The background to this story is that Ms Henry left her job and raised a personal grievance. Following mediation she and her former employer signed a settlement agreement. A sum of money was to be paid to her and a term of the agreement was the matter would remain confidential.

Before the money could be paid to her however Ms Henry returned to the premises of her former employer to do some shopping. Passing through the checkout counter she commented to the employee at the till that she had “won” her case. The checkout operator reported this to her supervisor who in turn told the manager.

While there was discussion about who said what to whom the Authority was satisfied Ms Henry provided enough details to “prick the other’s interest and critically, for our purposes, to breach the explicit terms of the confidentiality provision in the record of settlement.” As a result the Authority said the Warehouse would not have to pay her the sum agreed at settlement.

Having found that she had breached the terms of the agreement the Authority said her comments were “unthinking and perhaps foolish” as opposed to “deliberate or willful” and because of this they declined to make a penalty against her noting: Penalties are penal sanctions for breaches of an agreement. The Authority may order that the whole or any part of the penalty be paid to any person. Penalties, being punitive in nature, are directed at proscribing undesirable behaviours or conduct. It is logical that such behaviours be deliberate or willful. It has been said that generally speaking, a penalty is appropriate only where there has been a willful breach or default.

It may interest employers to know that the maximum penalty for breach of a settlement agreement is $10,000.00 for individuals and $20,000.00 for companies. What constitutes a deliberate or willful breach is not always clear. In Xu v McIntosh WC13A/04 a case involving a personal grievance and unpaid wages, the Employment Court provided guidance for calculating the maximum penalty. Once a breach of the settlement agreement has been found the Court or Authority will assess the quantum of the penalty by asking the following questions found in Xu:

1. How much harm has the breach occasioned?
2. How important is it to bring home to the party in default that such behaviour is unacceptable or to deter others from it?
3. What is the perpetrator's culpability?
4. Was the breach technical and inadvertent or was it flagrant and deliberate?
5. And in deciding whether any part of the penalty should be paid to the victim of the breach, regard must be had to the degree of harm that the victim suffered as a result of the breach.

This is a comprehensive list and one which should catch a range of inappropriate post settlement behaviours. It was used by the Authority in a recent matter where a former employee party to a settlement agreement sent numerous text messages to a former work colleague which included among other things that one company employee was a “sycophantic sociopath”, and another was an “arsehole and greedy”.

The Authority had no doubt the breaches constituted a flagrant, deliberate and ongoing breach of clause 2 of the settlement agreement which provided neither party would speak ill of the other. As a result the former employee was ordered to comply with the terms of the certified agreement. He was also penalized $2,500.00, $1,500.00 of that he was ordered to pay directly to his former employer.

The 2007 case of Gaskin v Grenside serves as an unfortunate reminder that employers too are obligated to keep settlements confidential. The background to this cautionary tale is that Mr Grenside had been a taxi driver working for Mr Gaskin. In 2001 he filed a personal grievance seeking outstanding holiday pay and pay in lieu of notice following the end of his employment. While filing a personal grievance for this would be unwelcome for any employer on a scale of possible problems this may not be that a big of a deal. During mediation the parties settled.

Five years later in 2006 Mr Grenside publicly announced his intention to obtain a passenger service license in the notices section of the Dominion Post newspaper. The notice called for any objections to the application be sent to the regional offices of Land Transport Authority.

Mr Gaskin saw the notice and emailed the LTA objecting to the application. He also disclosed some details which Mr Grenside said were part of the confidential settlement agreement signed off by a mediator which was to have brought a full and final end to the personal grievance. Mr Gaskin also copied the email to the person who had provided support for Mr Grenside’s personal grievance over outstanding holiday pay and pay in lieu back in 2001.

The Authority found the contents of Mr Gaskin’s email breached the confidentiality term of the settlement agreement. He challenged that decision which is why it ended up in the Employment Court. The Employment Court confirmed settlements are final, binding and enforceable. The Court recognized that a party who breaches an agreed term of settlement duly certified by a mediator is liable to a penalty.

This one off breach of confidentiality was found to be deliberate and the Employment Court confirmed the $4,000.00 penalty imposed by the Authority. It was decided the amount should be split evenly between Mr Greenside and the Crown with $2,000.00 going to each. Mr Gaskin was also ordered to make a contribution to Mr Greenside’s costs of $1,200.00.

Occasionally an agreement may be revisited because the employer neglects to pay the full amount of money agreed to settle. While it is possible though unlikely for an employer to honestly forget to pay the money on the date promised, the Authority will not accept long delays. Such an event may lead to an additional penalty as was the case in Major v Future Print.

The background to this story is that under a settlement agreement dated 21 May 2014 Future Print was to pay its former employee $1,800.00 by 4 June 2014. More than a year later they had still not paid the money so Mr Major filed with the Authority.

Citing the interests of justice the Authority imposed a $1,500.00 penalty on Future Print and gave two thirds of that to Mr Major. It also ordered the company to pay 5% interest on the money owed as it had the benefit of using the $1,800.00 throughout the previous year. As you can see all up the employer nearly doubled the amount they originally agreed to pay to resolve the original employment problem. That is an unfortunate price has to pay to experience “déjà vu all over again”.

By David Brown,
 Solicitor Otago Southland Employers' Association