Records  of  Settlements Under Fire

It is common practice for parties who resolve an employment relationship problem or dispute to enter into a Record of Settlement under section 149 of the Employment Relations Act 2000.

One of the major benefits of doing so is that once a Mediator from the Ministry of Business, Innovation and Employment has explained the effect of that section to the parties and has signed the Record of Settlement, the terms of the Record of Settlement are final and binding, cannot be canceled, and cannot be brought before the Employment Relations Authority or Employment Court.

Two recent decisions serve as a useful reminder that despite this protection, there are limited circumstances on which they can be overturned.

Sawyer v Vice Chancellor of Victoria University of Wellington

The Court of Appeal declined leave to appeal two decisions of the Employment Court regarding a Record of Settlement between an employee, Dr Sawyer, and her former employer, Victoria University of Wellington.

While  employed  by  the  University Dr  Sawyer complained about two senior members of her faculty. Her complaint led to an investigation, a mediation, and ultimately the parties entered into a Record of Settlement signed off by a Mediator in accordance with section 149 of the Employment Relations Act 2000. As part of this Dr Sawyer resigned from her position.

Dr Sawyer subsequently issued proceedings in the Employment Relations Authority claiming she was constructively dismissed as she was under duress when she signed the Record of Settlement and that the Record of Settlement was illegal as a result of its terms. Both the Employment Relations Authority and the Employment Court dismissed the proceedings.  Dr Sawyer sought leave to appeal to the Court of Appeal.

Employment Court

The Employment Court determined the evidence did not support Dr Sawyer’s claim she was under duress when she signed the Record of Settlement. While she was left alone at times during the mediation, this was found     to be inconsistent duress. Her lawyer had told her that the University “will mince you up” but this was found to be her own lawyer’s interpretation of the University’s position. Dr Sawyer had legal advice throughout the process and waited 30 weeks to bring her proceedings.

The Employment Court held the terms of the Record  of Settlement were conventional and the agreement was not illegal.

Court of Appeal

In the Court of Appeal Dr Sawyer submitted the Employment Court had erred in finding the Record of Settlement was valid. Dr Sawyer also claimed the Record of Settlement was illegal because the University’s signatory did not have authority to sign.

The CA said the EC had made its decision regarding validity based on the evidence that was before it. Whether the agreement was invalid due to duress or illegal due to issues with the signatory were both issues of fact which could not be a ‘question of law’ for the purposes of an appeal to the CA.

The CA accepted that questions regarding the legality of Record of Settlements may give rise to questions of law. However, that was not the case here. Dr Sawyer claimed the illegality was a result of victimisation and blackmail; both factual issues as opposed to legal issues.

TUV v WXY

An employee signed a Record of Settlement which was then signed off by a Mediator. Subsequently, she obtained a medical opinion that more likely than not she was mentally incapacitated when she signed the Record of Settlement and when the Mediator telephoned her to explain the effect of section 149, and that she had lacked capacity to instruct a lawyer. The employee then sought to overturn the Record of Settlement.

The Employment Court held that where an employee can establish they did not have the requisite mental capacity to enter into a Record of Settlement, section 149 is  not engaged because the fundamentals of contract law are not made out.

However, to set aside a Record of Settlement on the ground of mental incapacity the employee also has to show the employer must have known, or ought to have known, the employee was incapacitated when the Record of Settlement was signed.

The Employment Court found the employer did not know the employee was mentally incapacitated and the employee was unable to establish the employer ought to have known; the settlement was negotiated through the employee’s lawyer and the medical information before the employer was limited. The employer had also been provided with a medical certificate that said the employee had an “overall intact neurological profile”. As a result, Record of Settlement remained in force.

Learnings

While neither of these employees were successful with their attempts to overturn the Records of Settlement it does not mean that this will always be the case.

Where an employee is self-represented claims of duress are much more likely to be successful. Employers should be careful to ensure that they are not seen to be unduly pressuring an employee. In some cases a ‘cooling-off’ period may be useful in which the employee is invited to seek legal advice. Agreements entered into following mediation process provided by the Ministry of Business, Innovation and Employment are more likely to be upheld than a Record of Settlement agreed with the employee privately and then provided to the Mediator for sign- off. Finally, inclusion of particularly onerous terms is not only likely to indicate duress but open the Record of Settlement up to scrutiny more generally.

Whether or not an employee has sufficient medical capacity to enter into a Record of Settlement is also     a difficult issue. Adopting a similar approach may be helpful (i.e. providing further time and the opportunity to seek legal advice) and in some circumstances seeking medical information may also be helpful – although this may be forthcoming.

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