The nature of employment law claims often allows early resolution without lengthy and costly litigation.
That is because the sums at issue often do not justify the expense of court disputes. Often employees and employers would rather get on with their lives than expose themselves to further risk and cost.
The Government encourages early resolution of employment disputes by effectively mandating that parties to almost every employment dispute lodged with the Employment Relations Authority attempt to resolve their dispute at mediation first. To facilitate this, the Ministry of Business, Innovation and Employment (MBIE) provides mediation services at no cost to the parties. Around 80% of disputes that are referred to mediation are settled.
In the event that parties reach agreement about how to settle their dispute at mediation, the mediator will type up a settlement agreement then and there for the parties to sign. Often, that means parties are able to walk away from the mediation with the weight of the dispute having been lifted from their shoulders.
However, sometimes the dispute does not end there. One or both of the parties may not keep to the terms of what was agreed. In those cases, the dispute then centres on how to enforce the settlement agreement, or whether one party is entitled to cancel the settlement agreement and re-open the original claims.
THE MEDIATORS’ POWER
In 2004, the Employment Relations Act was amended so that the mediators employed by MBIE could have the power to bind the parties to a settlement agreement in such a way that it could not be cancelled.
Mediators can bind the parties in this way by countersigning the agreement at the time the parties enter into the settlement. Before doing so, they must be sure the parties understand that, if the mediator countersigns the agreement, they will not be able to cancel the agreement or reopen the claims that they have settled.
This begs the question: what happens if the mediator does not countersign the agreement? Is the agreement still enforceable?
TWO TYPES OF SETTLEMENTS
A recent Court of Appeal judgment has highlighted that because mediators have the power to bind the parties as already described, there are two distinct classes of settlement of an employment dispute – one where the mediator countersigns the agreement, and the other where the mediator does not countersign. They can have different consequences for enforcement that are worth taking notice of.
A countersigned settlement agreement
When a mediator countersigns a settlement agreement, the consequences are that:
- cancellation of the agreement can never occur, meaning that neither party can reopen the disputes that gave rise to the settlement.
- a penalty of up to $10,000 for an individual or $20,000 for a company can be ordered where a party does not comply with the agreement.
The options for enforcing the agreement are to seek:
- a compliance order in the Employment Relations Authority. If the other side does not comply with a compliance order, then you can apply to the Employment Court, which can order imprisonment of up to three months, penalty of up to $40,000, or seizure of property to satisfy a debt not paid.
- for a payment of money owed under the agreement, an order to convert the agreement into a District Court judgment for enforcement by one of the mechanisms provided by those courts, such as attachment order or sale of property.
Under this regime, if there is a breach of a settlement agreement that results in damages or other costs, those damages or other costs cannot be recovered. So for example, if a breach of a settlement term resulted in a loss of $100,000, you may be able to get a penalty of up to $20,000 against a company, but no more than that.
Other settlement agreements
If the settlement agreement is not countersigned by a mediator, then:
- it is possible for one party to cancel the agreement if the other party does not fulfil their obligations. In that event, the claims that gave rise to the settlement could possibly be reopened.
- assuming the settlement concerns the termination of an employment relationship and is not merely a variation to an employment agreement, the settlement is an entirely new agreement between the parties and cannot be enforced in the Employment Relations Authority or the Employment Court. If the issue for enforcement concerns sums below $200,000, it could be enforced in the District Courts, otherwise it would need to be enforced in the High Court.
Under this type of agreement, either party is free to sue the other for damages (which may exceed the upper limits of penalties that can be awarded for the breach of an agreement countersigned by a mediator).
SHOULD THE MEDIATOR BE ASKED TO COUNTERSIGN?
Here are some factors parties may consider when weighing what type of settlement agreement they will want to enter into:
- Risk: are you willing to take the risk that the agreement might be cancelled and the underlying issues re-litigated if you do not fulfil your part of the settlement deal? If not, then this may be a factor in favour of asking a mediator to countersign.
- Enforcement: do you want to be able to get an order for damages (and not just a penalty) from the District Courts or the High Court if the other party breaches their obligations under the settlement deal? If so, then this may be a factor in favour of not asking the mediator to countersign.
- Penalties: do you prefer to seek a straightforward penalty if either party breaches the terms of settlement as a means of reducing costs? If so, then this is a factor in favour of asking a mediator to countersign.
Given the differences between the two types of settlement arrangements, parties to employment disputes may want to think carefully about the risks and types of enforcement mechanisms that will be open to them when entering into a settlement.
The preferences in favour or against taking that approach will vary in as much as every settlement agreement has its own unique flavour.