Updated: Jan 13
Let’s say you’re a manager in a public sector organisation and you could be implicated in procurement fraud or other serious wrongdoing.
Someone reports it through a protected disclosure that appears to meet the requirements of the Protected Disclosures Act 2000, and the source of that protected disclosure is credible, and not a person with whom performance issues or working relationships has ever been a concern.
In other words, a solid performer with no axe to grind, who happened to discover what appears to be serious wrongdoing within the organisation that could get you and others into trouble.
You would want to keep that contained.
Regardless of whether or not the serious wrongdoing ceases, the problem at that time is what happens if the recent past cannot be covered up.
The Holy Grail of whistleblower-silencing tools available to the cover-up artist is the mediated settlement agreement with a non-disclosure or non-disparagement clause (NDA).
First you need get the employee into mediation.
For context, there are around 11,000 mediations per year in New Zealand. If the workforce is roughly 3 million that means 1% of workers go into mediation in any three year period.
So how do you get an employee, who is loyal to the organisation, a solid performer with good working relationships and no history of disciplinary action into the local branch of the Ministry of Business, Innovation and Employment (MBIE) for a confidential mediation?
Bullying! We’re the experts at this having the second-highest rate of workplace bullying in the OECD.
What form that takes depends on the target, but it needs to be severe so that the whistleblower employee seeks advice from a lawyer. You will know you have succeeded in the first step when your HR advisor emails you about a complaint or a Personal Grievance.
Once the employee has a lawyer, HR will communicate with that lawyer.
A workplace investigation comes next and HR can either investigate itself, or preferably arrange for an “independent” workplace investigator to examine documents and conduct interviews and prepare a “draft report” that indicates no evidence of bullying, but expresses concern that working relationships may have been irrepairably damaged.
The employee realises they may have fallen out with a couple of managers, but at least in mediation the employee can re-introduce the serious wrongdoing, right?
Probably. But using this method the whistleblower’s evidence of serious wrongdoing gets handed over to the employer’s lawyer and eventually shredded.
Mediation is the home of the Section 149 stitch-up. This requires the following conditions:
- The mediator explains that under Section 149 the Record of Settlement, counter-signed by the mediator, is final and binding and cannot be brought before any tribunal or court, except for enforcement purposes.
- The parties sign the settlement agreement.
Here’s the clever part: early in the mediation the whistleblower employee is asked to sit in a separate room while their lawyer negotiates an exit package. Any documentation is handed over to the employer’s lawyer and/or the HR advisor as one of the conditions of the exit package. The employee’s lawyer will go to the employee and explain the employer’s offer. Once the terms have been negotiated, the employee will advised by their lawyer to sign the Record of Settlement that has just been drafted. This might include compensation for hurt and humiliation which is not taxed, or payment of salary for a certain period during which the employee is not required to turn up to work, or a combination of these.
An important element of this scenario may include the employee being advised to hand over the evidence of serious wrongdoing. Occasionally there’s no offer of compensation, only threats to destroy the career of the employee through blacklisting if they don’t do what they’re told. The employees’ legal costs may be paid by the employer as part of the settlement to make it look like a “consideration” in support of the employee agreeing, probably under duress, to be bound by the NDA clause. For this to work, your lawyer needs to persuade the employee’s lawyer to agree to it, and that may require the payment of legal fees to be somewhat inflated, ie: $10,000+GST for around $5,000+GST worth of work. This is what we euphemistically refer to as “agreement between counsel”.
Sometimes the target refuses to sign, and you end up with a Personal Grievance claim filed in the ERA, but even if that happens the ERA will usually send the matter back to mediation and you might get a second shot. The frustration associated with an initial failed mediation and Personal Grievance claim may give rise to the temptation to intimidate, harass or stalk the whistleblower as a senior officer of Bay of Plenty District Health Board discovered.
Once the target has signed the Record of Settlement, which Judge Perkins described as a “statutory overlay”, you/the employer can claim it has removed certain rights the departing employee would normally have enjoyed, eg:
- the Bill of Rights Act, to restrict free speech
- the Privacy Act, to prevent the employee from asking for their HR file, and
- the Protected Disclosures Act, to prevent further protected disclosures as an ex-employee.
The employee, already anxious from probably spending hours alone in a room while their job is dismantled in the next room, will by then have forgotten about the serious wrongdoing they reported in a Protected Disclosure months earlier and would be focused on personal finances, reputational harm and needing to look for another job.
So when presented with an offer of a payout (or at least a promise not to blacklist) in exchange for giving up the security of previously stable job along with committing to a non-disclosure agreement (NDA), the employee would probably just want to get it over with. And the NDA is practically the whole point – to silence a whistleblower.
We’ll explain the implications of an employee breaching a non-disclosure clause in a settlement agreement. A 2015 Employment Court decision that we have reported on previously mentions that an NDA clause in a settlement agreement can prevent a former employee from reporting wrongdoing to the Police or any regulatory body – that’s how Holy a Record of Settlement is.
Departing employees normally start off with the right to free expression under the Bill of Rights Act (NZBORA) and the right under the Privacy Act not to be subject to negative backdoor references (as a referee can only give an employment reference if asked to by the employee). But the RoS statutorily overlays those rights. If the former employee breaches the NDA clause even in the nature of a Protected Disclosure and the employer finds out, it can issue a Statement of Problem in the ERA and apply for a Compliance Order, a penalty and legal costs. We know of one such action in 2017 where Tauranga City Council bankrupted an IT Engineer on indemnity costs which ran into six figures. That was part of the settlement agreement and it’s possible the employee didn’t know what was meant by “indemnity costs” and almost certainly wouldn’t have expected to be liable for the cost of an industrial psychologist.
Leaving an organisation with hush money is not the same as being made redundant and being paid compensation depending on length of service. At least where redundancy occurs there will be business or structural reasons and it’s not personal; and where a redundant employee enters the job market it’s easy enough to explain the reasons for redundancy to the hiring manager’s satisfaction, and the redundant employee can usually get a good reference.
The Protected Disclosures Act purports to protect employees from being dismissed for whistleblowing, but the (Employment Relations Act 2000) Section 149 operation is often an effective workaround where covering-up of serious wrongdoing is needed. Good luck!