Breach of settlement has consequences

General / 25 May 2017
Breach of settlement has consequences

Dispute outcomes negotiated by agreement are commonly and prudently recorded in a Record of Settlement (ROS), signed by a mediator pursuant to s149 of the Employment Relations Act 2000, giving the ROS final and binding status.  ROS’s executed in this way are also non-reviewable, and cannot be brought before the Employment Relations Authority or Employment Court except for enforcement purposes.

Case Summary
In the recent Employment Court decision of Lumsden v SkyCity Management Ltd, Mr Lumsden was a former employee of a SkyCity restaurant and claimed that SkyCity had breached the parties’ agreed ROS.  The ROS provided that Mr Lumsden would end his employment with SkyCity by resignation, that the parties would not disparage each other, and that Mr Lumsden was welcome to apply for any future employment opportunities within SkyCity.

Mr Lumsden claimed that SkyCity had disparaged him when his former manager wrote in the company’s computer system that she would not re-employ him, noting “outstanding performance issues, staff and customer complaints. Not a team player, major attitude change, became very difficult to manage as he wouldn’t follow management’s directions.”

SkyCity argued that these comments were not in breach of the ROS as they were not disparaging and had not been made publically.  However, the Court found these comments were in breach, including because they had been available to prospective internal SkyCity employers or stakeholders for two years.  It emerged during the Court hearing that SkyCity initially omitted the note from its evidence resulting in the Judge commenting that “the failure to refer to the detail of the form reflected an attempt by SkyCity to mask the full extent of its breach”.

SkyCity also argued that the clause in the ROS regarding the rehiring of Mr Lumsden simply meant that he was welcome to apply for future positions by filling in an application form, but that he was not promised employment.  The Court held that such a literal interpretation would render the clause meaningless, as though it simply meant Mr Lumsden could send in an application which SkyCity could immediately put through the shredder.  Mr Lumsden had unsuccessfully applied for four positions with SkyCity demonstrating that the notations made on the file were intended to and did have an impact on recruitment decisions.

The Court held that SkyCity should not have agreed to the inclusion of the clause that he was welcome to apply for any future employment opportunities if they had no intent on rehiring him.  The Court found that the negative notations meant that Mr Lumsden’s applications were doomed from the start and were not fairly considered and treated on their own merits.

The decision
The Court held that SkyCity had failed to treat all matters as fully and finally settled because of the notations and the way Mr Lumsden’s job applications were dealt with.   SkyCity was ordered to pay a penalty of $7500, with 75 percent going to Mr Lumsden, and the remainder to be paid to the Crown, the second largest penalty in a breach of settlement case in the past two years.

What this means for you
Agreed settlements offer employers and employees the opportunity to bring finality and closure to an employment relationship problem.  It is important that the terms of settlement reflect your intentions as a poorly drafted agreement can create new problems, and sometimes lead to further issues and litigation.

A number of recent decisions clearly demonstrate that settlements will be enforced, including by award of penalties against the party in breach.

For more information about negotiating resolution to an employment relationship problem, drafting a record of settlement, or to discuss concerns about any breach of settlement including options for enforcement, please contact us

Disclaimer: We remind you that while this article provides commentary on employment law and health and safety topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek legal advice from your lawyer for any questions specific to your workplace.
May 2017

Back to News and Publications