Fraud suspect tries to use a settlement agreement to stop a Police investigation – by Tristam Price

A quick call to Wellington barrister Ben Nettleton confirmed that his successful defence of an alleged breach of a Record of Settlement (s 149) by his client Embark Education Ltd was not challenged to the Employment Court within 28 days.

This Employment Relations Authority (ERA) determination therefore stands: https://www.employment.govt.nz/determination/view/18643

If such a claim had been brought in the UK or Australia, it would have been a pushover. But in New Zealand, particularly from 2014 onwards, you just never know when the “sanctity and integrity” of a mediated settlement agreement that’s been used by one of the parties to cover up crimes will be not only blessed by a Member of the ERA but also used as the basis for transferring money between parties - and to any lawyers involved. It’s no secret that Leighton Associates exists because of one such “enforcement” in 2017, which was a kickback to two managers masquerading as a penalty against a target for reporting fraudulent conduct, administered by arguably the dodgiest Member the ERA has ever had.

It wasn’t the first time the ERA did something illegal and it certainly wasn’t the last. It would be naive to think this route wasn’t put in place to be used.

If, hypothetically, the legal privilege was stripped away from all 12,000 Records of Settlement (RoS) signed in the last year and those RoS inspected, amongst the mundane settlements for unjustified dismissal and bullying we would expect to find a troubling number of whistleblower retaliation events and fraudulent transactions. Lawyers who raise this issue risk being attacked by undesirables within and at the periphery of the Law Society.

Back to Embark Education Ltd. ERA Member Robin Arthur’s recent determination indicates that Embark has been the victim of an alleged invoicing fraud throughout most of 2019 and the person allegedly responsible left the organisation in November of that year under disputed circumstances.

In February 2020 Embark reported suspicious transactions to the Police. The following month, Mr Shankar, the former employee, raised a personal grievance claim in the ERA, and we understand that his Statement of Problem gave no indication that he was aware that a complaint had been made to Police about him.

The ERA had referred the parties to mediation where most disputes are resolved – indeed this employment dispute was resolved on confidential terms on May 2020, by which time Mr Shankar was aware of the Police complaint. He was arrested on 18 October 2020, and Member Arthur’s determination notes that his trial has been scheduled for June 2023.

Mr Shankar, almost certainly feeling aggrieved by the continuation of the fraud investigation which he probably thought the settlement agreement was supposed to cover up, went back to the ERA, claiming that by continuing to participate in the Police investigation into his alleged invoicing fraud, Embark breached the terms of the settlement. Member Arthur duly dismissed Shankar’s claim, but he confirmed that a Record of Settlement can be used to prevent Police reporting:

[41] There is an arguable public interest in not allowing a finality clause to prohibit a former employer co-operating with a Police inquiry where the decisions about the inquiry and prosecution are beyond the hands of the employer, as was the case here. In Mr Shankar’s case it was an important fact that the complaint was made before the settlement with the finality clause was agreed. A different evaluation might result where one party to an employment relationship knew of some allegedly serious criminal conduct by the other party and chose not to do anything about it at the time but, as an act of spite after concluding a full and final settlement agreement on employment matters, then made a criminal complaint as a means of harrying or inconveniencing that other party. In some cases those factual issues may be clear cut. In other cases they may require examination of the evidence through an Authority investigation.

This is where things can get murky for three reasons, as Member Arthur’s interpretation of the finality of s 149 demonstrates:

• It still allows whistleblowers to be gagged by way of threats made in mediation under privilege. Such threats include not only dismissal but also blacklisting and burying in costly litigation. We wrote the manual on this in 2020 (and were roasted by a few people who didn’t get it!).

• Where a former employee has the benefit of a confidentiality clause in a settlement agreement, and suspected fraud comes to light later, even if the settlement agreement was entered into in good faith, reporting that fraud to Police exposes the employer and/or the individual complainant to a penalty for a breach of that settlement agreement (which is what Mr Shankar tried to do).

• While Nettleton applied at an early stage to have the proceeding struck out as vexatious, this was declined. But through a combination of good timing, good management and good representation, the result was about the same.

So the lesson is, if you suspect fraud by an employee, make your initial report to the Police immediately and then run, don’t walk, to your employment lawyer for advice on getting the alleged fraudster off your site before they can cover their tracks. All they need is for HR or a manager to commit your company to silence.