David Burton now leads the Employment Law Team at Mahony Horner Lawyers.  Contact David here.

A lot of employment relationships remain respectful, both during and after the employment ending. However, employment relationships can break down. Breakdowns can lead to employment disputes. When that happens, the parties have access to the free employment mediation service provided through the Ministry of Business, Innovation and Employment. This service (Mediation Services) provides a generally excellent independent mediator that helps the parties come to an agreement to resolve their dispute. Such agreements are final and binding on the parties and are confidential.

A recent case before the Employment Relations Authority has demonstrated the importance for parties to abide by the terms in their settlement agreement and the potential consequences that may arise from breaching that agreement.

The law

The law provides that, unless the parties agree otherwise, matters relating to mediation must be kept confidential. This includes anything that is said or created for the purposes of mediation, and all that is said in mediation. This confidentiality is crucial to resolving disputes as it enables the parties to feel comfortable about discussing matters openly and agreeing on settlement terms to resolve the dispute. If they are unable to resolve their dispute, the parties then have to pursue their dispute in public forums like the Employment Relations Authority (often “airing their dirty laundry” for anyone to read or talk about).

To help protect the confidentiality of settlement agreements, anyone involved in the mediation process (including employers, employees, representatives and mediators) must maintain that confidentiality otherwise they can be liable to pay a penalty. The quantum of any penalty awarded will be based on a number of factors, including the nature and extent of the breach and whether it was intentional, inadvertent, or negligent. Because of the importance of protecting the integrity of settlement agreements, and the mediation process generally, penalties are likely to be awarded when there has been a breach.

The case

In the recent case of DCB v RTS, the Chief Executive of the employee’s former employer spoke to the HR advisor of their new employer and mentioned the quantum that was settled on in mediation, and some of the “noise” that had led to problems with the employee. The Chief Executive mistakenly believed he was able to speak freely about the employee. He was not aware of what was in the settlement agreement or what was discussed at mediation. He did not check about what he could discuss before agreeing to speak to the new employer’s HR advisor.

Legally, as agreed in the settlement agreement, the only information that the former employer was able to provide was the fact that the employee had resigned. By going into some detail on the breakdown in the employment relationship, including matters described as “noise”, the former employer had breached the confidentiality of the settlement agreement.

The Authority awarded a penalty against the former employer based on the negligence and seriousness of the breach in favour of the employee.

 What this means

The case is a good example of the need to abide by any settlement agreement following mediation. The Authority or the Court will not treat breaches lightly, and can take into account an employer’s financial situation to award higher damages.

One matter which arose during the case was that the Chief Executive said it was normal for senior members of organisations to share information informally and confidentially. If that is the perception between some senior business leaders, it potentially carries significant risk. If there is a settlement agreement, breaches may lead to penalties being imposed. Further, it is clearly a breach of the obligations that employers owe employees (and ex-employees) under the Privacy Act.

Confidentiality issues are not limited to employers. Employees may also be held to account for breaching the confidentiality of settlement agreements. It also applies to the representatives of the parties who have reached a settlement at mediation. In CultureSafe NZ Ltd v Turuki Healthcare Services Charitable Trust the employee’s representative repeatedly breached the settlement agreement by sending correspondence to Government Ministers that referred to confidential matters and was disparaging towards the previous employer. The Employment Court held that all persons involved in a mediation have obligations, and that any person who knowingly breaches a settlement agreement is liable for a penalty. The employee’s representative was ordered to pay penalties to the employer for breaching the settlement agreement.

The takeaway from all of this is that anyone involved in a mediation must be particularly careful to ensure they are complying with their obligations.

In providing references, the employer should ensure that the employee (or ex-employee) has authorised the disclosure of personal information AND that there are not any further constraints on what may be disclosed – such as through a settlement agreement.