Employment settlement agreements that are signed by MBIE mediators are called Records of Settlement (RoS). A RoS will almost certainly include an agreement that the parties will not disparage each other, disclose certain information, or both. RoS is a term that’s almost exclusive to New Zealand – in other countries they’re just called NDAs. Sometimes there is confusion over whether the “D” in NDA means disparagement or disclosure.
Usually if mediation is completed that means the employee is going to be looking for another job very soon, after agreeing to leave with a payout as an inducement to resign. Without mediation, an employee would normally resign on notice and take it for granted that wages up to the end of the notice period plus outstanding holiday pay, will be paid, regardless of whether or not the employer chooses to put the employee on garden leave. A settlement figure will include all that, plus an inducement to resign and not take a personal grievance claim to the ERA and not talk about certain things. That payment could break down into three components:
Compensation for hurt and humiliation (tax free)
Payment for an extended period of notice during which the employee is not required to work (taxed as normal income), which is the employer’s offer for the employee’s silence
Payment of some or all of the employee’s legal costs, as the employer can claim back the GST component
Companies operating in a competitive environment place a lot of value in the protection of confidential information, even if they don’t put restraint of trade clauses in employment agreements. Confidential information includes pricing, customer lists, product specifications and the like, and if such information falls into the wrong hands it could give an unfair advantage to a competitor.
Public sector organisations, while not necessarily operating in a competitive environment, might seek to use non-disclosure agreements to protect the privacy or other interests of parties they interact with, because those parties have a right to have their sensitive information protected. Those parties might include managers within the organisation, if they are involved with the settlement negotiations.
The starting point is that the employee has unfettered rights of free expression, subject to reasonable limits. Under the Privacy Act a person cannot give an employment reference unless asked to by the (former) employee. As NZCU Baywideand Pitter Patter (Feilding) discovered, unauthorised negative references could be a breach of the Privacy Act with horrendous consequences. A former manager can normally refuse to give a reference, although a non-monetary consideration as part of the settlement agreement could include a good reference for the soon to be job-hunting employee.
In return the employer will expect the employee to keep certain information confidential and/or not speak ill of the employer or other named people such as managers. A non-disparagement clause would for exam[le forbid the employee from telling the employer about any wrongdoing by those managers.
What is goodwill worth?
An employee who is adequately compensated for the loss of their job is less likely to breach the terms of their RoS. We often hear from employees who remain aggrieved after a settlement and that may be because representatives of the employer have done unethical things in preparation for mediation such as running a bogus workplace investigation, blackmailing the employee, or coercing the employee’s representative towards a particular result - usually acceptance of a lowball offer - by offering the representative an inflated fee. “Flipping” of employees’ counsel is depressingly common, but even we were shocked when we learned that an advocate had been flipped not by a lawyer, but by an unrepresented HR and/or operations manager, leaving the employee jobless, feeling deceived, saddled with an inappropriate non-disparagement agreement and a long period of unemployment quickly eating through his small payout.
Having duped the employee out of his job, all the operations manager then needed to do to get the in-house operation blessed by MBIE by scanning the RoS, clicking on this link (www.employment.govt.nz) and uploading the RoS. No questions asked.
A RoS is a contract, and duress makes a contract voidable; illegality makes it unenforceable. Yet the hyperreligiosity associated with these particular contracts, including the 2015 blessing by the Employment Court of a clause in a RoS that prohibited the departing employee from complaining to police, has promoted the use of RoS to cover up serious wrongdoing. We know of only two RoS that were found to be invalid by the ERA or Employment Court. When combined with the relative ease of obtaining non-publication or non-identification orders, serious wrongdoing can progress to money laundering and awarding of kickbacks. We’ve also heard of lawyers complaining that the kickbacks weren’t kept “confidential”!
If an employer does find out a former employee has breached the non-disparagement clause in their RoS, it has the option of bringing an action in the Employment Relations Authority but should think very carefully about doing so, as Oranga Tamariki discovered after recent litigious attacks on a Newsroom reporter and two suspected whistleblowers, in unrelated proceedings. Suing whistleblowers is not a great way to attract and retain staff.
Months from now Hamilton City Council is also going to Google up as not a particularly good place to work because it is suing a former property manager for breaching a non-disparagement clause in his RoS that was seven years old! Not only that, but very recently, after the former employee sent in his Statement in Reply (defence) and HCC refused to back down, the former employee has disclosed some malfeasence from around 2013 on Facebook. Because we've been following the advocate's Facebook page (as have a number of unfriendly lawyers) and not noticed any previous disclosures of this nature, we suspect that there was also a non-disclosure clause that he was happy to comply with for years, that is until HCC saw fit to sue him for disparagement. The conduct that has now been disclosed may be helpful to the advocate as he defends the disparagement claim and in time we may see the Streisand Effect yet again.
Aside from any legal shenanigans, employers that are hiring generally expect candidates to do a little research on them in preparation for their job interview, to save time at the interview, and most jobseekers know this. If such research brings up a RoS enforcement against a former employee for example, the more talented candidates are likely to be put off, not so much out of fear of eventually becoming embroiled in legal proceedings themselves, but because it is indicative of morale problems and general dysfunction. Similarly, loyalty of existing employees is likely to be impacted.