Getting settlement agreements right
This article was written by Mary Crimp and was published in the Canterbury Build Magazine Issue 51 November 2015.
Serious employment disputes are often settled by written agreement which is stated to be in full and final settlement of all matters arising out of the employment relationship. Such agreements are also commonly executed pursuant to s149 of the Employment Relations Act 2000 meaning they are only enforceable by the Employment Relations Authority (the Authority) and the Employment Court (EC) and that the validity of the agreement is more difficult to challenge.
Despite these benefits, it remains important for the parties to a dispute to consider at an early stage in the settlement process both the form and content of any proposed agreement.
This has been highlighted by the Court of Appeal in the recent case of JP Morgan Chase Bank NZ v Robert Lewis  NZCA 255 which found that:
- Neither the Authority nor the EC have the jurisdiction to enforce a settlement agreement that terminates an employment relationship if it hasn’t been executed pursuant to s149.
- Such an agreement is a new stand-alone agreement, intended to replace the employment agreement and to govern the parties’ obligations to each other after the employment relationship has ended.
- Neither the Authority nor the EC have the power to award a party damages for breach of a settlement agreement.
Accordingly, there could be significant ramifications for parties to an agreement if sufficient care is not taken when negotiating and recording terms. In particular, both parties should consider:
- What terms are to be included in a settlement agreement. Any term not documented in a settlement agreement, whether executed under s149 or not, is likely to be unenforceable even if it were intended to survive the end of the employment relationship (i.e. restraint of trade / confidentiality).
- What remedies would be sought if the settlement agreement is breached. While the Authority and EC have exclusive jurisdiction to enforce s149 agreements, they cannot award damages for any loss suffered as a result of a breach. Conversely, while damages are available for claims brought in the District or High Court, there is more scope for a party to challenge the validity of the settlement agreement.
If you are looking to settle an employment dispute, whether as an employer or an employee, we recommend that legal advice be sought at the earliest possible opportunity to ensure that you are aware of the ramifications of the decisions you are making and are adequately protected.