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When is an employment settlement agreement 'full and final'?

20 March 2022

Employment relationship problems can be a relatively common occurrence. They can be complex and may need intervention from a representative or third party to settle. When these types of problems happen, an employer and employee will want certainty from any settlement agreement.


Records of Settlement

If the parties to an employment relationship problem have agreed on terms of settlement, they can ask for any settlement agreement to be certified by a mediator under section 149 of the Employment Relations Act 2000 (Act). These agreements are typically called Records of Settlement. Getting to certification generally comprises two stages. Firstly, the parties will be required to come to an agreement on settlement terms, and secondly the parties must:

  1. Request a mediator to certify the agreement.
  2. The mediator must affirm the parties’ understandings of the agreement.
  3. The mediator must certify the agreement.

Mediator certification will usually mean that a settlement agreement cannot be questioned by the Authority or Employment Court (except where enforcement is required). Where section 149 of the Act has not been satisfied, reliance or enforcement of an agreement may not be straightforward. As below, in JP Morgan Chase Bank NA v Lewis, the Court of Appeal considered the status of settlement agreements not certified by a mediator.


JP Morgan decision

Mr Lewis and JP Morgan Chase Bank entered into a settlement agreement which did not meet the requirements of section 149. The settlement agreement said that Mr Lewis would resign from his employment and set out internal communications around the resignation. After the agreement was signed, Mr Lewis was told by JP Morgan’s HR department that their records did not show that he had been the CEO. Mr Lewis applied for a position (with a different bank), saying that he had been JP Morgan’s CEO in New Zealand. When the prospective employer made enquires, JP Morgan denied that Mr Lewis had been their CEO. Mr Lewis lost the employment opportunity. Mr Lewis lodged a claim in the Employment Relations Authority. The Authority found that it did not have jurisdiction to grant a compliance order (or any other remedy) because the settlement agreement did not satisfy section 149. The settlement agreement could not be the subject of a compliance order (under section 137(1)(a)(i) of the Act) because it was not an employment agreement.

Mr Lewis filed a challenge to the Employment Court claiming that the settlement agreement was a variation of the employment agreement. Chief Judge Colgan said that he considered it was arguable that the settlement agreement constituted (at least in part) a variation to the employment agreement. The Employment Court also referred to the Authority’s exclusive jurisdiction to make determination about employment relationship problems (under section 161(1)(r) of the Act). JP Morgan appealed the decision.

The Court of Appeal held that the settlement agreement could not be characterised as a variation of the employment agreement and was instead a ‘stand alone’ agreement, intended by the parties to replace the employment agreement to apply to the party’s post-employment relationship. Consequently, neither the Authority nor the Employment Court had jurisdiction to hear the dispute as the employee’s claim did not arise or relate to the employment relationship problem. Rather, Mr Lewis’s claim was concerned with an alleged breach of the post-employment settlement agreement. If Mr Lewis’s claim was to be proceeded with it would need to go through the civil courts.


Enforceability

Following the decision in JP Morgan, settlement agreements which do not satisfy section 149 may still be enforceable in the Authority or Employment Court if they can be characterized as a variation of an employment agreement. With a rise in the number of Records of Settlement being lodged with MBIE, we are seeing more cases relating to settlement agreements and attempts to cancel or review them. Generally, if an agreement has been executed under section 149, it will be binding, and it cannot be brought before the Authority or Court except for enforcement purposes.

Norris Ward McKinnon is experienced in dealing with these types of problems and are happy to assist employers and employees in navigating settlement agreements.

Commercial Disputes & Employment Team