Reviewing a Decade of Colgan's Law - by Karen Davis

As Kim Leighton has discussed, employment lawyers and MBIE have set up a new system of law. This allows employers to have offences signed off by MBIE, and then suppressed and anonymised.

The new law is a type of contract available from MBIE, the Employment Relations Authority and in the Employment Court. It has become sufficiently established for employers or officials to use it to obtain money from individuals when that would otherwise also be illegal or an offence in national and international law.

That law was brought in by Chief Judge of the Employment Court, Graeme Colgan, in 2010. It was a huge step forward for employers, and is still the linchpin of cases where employers need to suppress what they have done.

All the employer or lawyer needs to do is put a term into a settlement contract that the other party will not “disparage” the employer, and draw that to the attention of anyone that might think of reporting the employer’s offences or, of course, acting on such a report – for example, the police.

Section 149 of the Employment Relations Act 2000 says that “A person who breaches an agreed term of settlement to which subsection (3) applies is liable to a penalty imposed by the Authority”.

What is also unusual is not only that the “person who breaches” can be anyone, but also that payments are not contract damages but a new sort of fine which the Authority developed later. Members have ordered these new “fines” to be paid to the offender, the offender’s lawyer or the Crown. The personal payments to the lawyer are in addition to the payment the offenders obtain for their legal costs. It is a truly remarkable law which has enabled MBIE to dish out fines without any authority from Parliament at all.

Chief Judge Colgan developed the law said in a case called Musa v Whanganui District Health Board [2010] NZEmpC 120. Mr Musa was a departing Chief Executive and he made a settlement contract with the District Health Board. A member of the Board, Mr Solomon, gave a media interview which suggested that Mr Musa had not been a good Chief Executive. Mr Musa made various claims against him. The case is set out rather confusedly, with a range of possible actions being alleged, but part of it relates to an alleged breach of the settlement contract.

Mr Solomon’s lawyer suggested that a settlement contract should be interpreted normally, so that only the parties were bound by it. He said that therefore Mr Solomon, who was not a party, could not be in breach of it.

Chief Judge Colgan did not agree. He said that to do that “would be to defeat the object of s 149 which is to preserve the confidentiality of settlements. To constrain only parties would, for example, mean, on Mr Leggat’s interpretation, that a journalist could broadcast or publish with impunity the confidential terms of a settlement reached under s 149 so defeating, without sanction, the statutory confidentiality of that settlement.”

This was an extremely brave move by the Chief Judge, because section 149 says nothing at all about confidentiality.

Section 148 does say something, but only that offers to settle in mediation are confidential. Section 57 of the Evidence Act 2006 says that offers to settle in mediation are privileged, but it specifically excludes the settlement contract itself.

The ramifications of this case have been widespread, as Kim Leighton’s article “Well Worth the Money” explained. A contract that binds third parties is the same in its effects as legislation. Chief Judge Colgan’s rule has enabled employers, including public organisations or companies that employ only their directors, to “legislate” to commit, legalise and suppress their own crimes.

Mr Colgan is now a practising barrister and can be hired to prepare cases or conduct employment investigations, although he does not appear in court in New Zealand. He was also appointed by Tauranga City Council to report, including about possible offences by its managers in 2019. The report was confidential.

In 2019 Mr Colgan was also appointed by the United Nations General Assembly as a judge on the UN’s employment Appeals Tribunal. It is not known whether he will promote a similar law there, or whether the UN’s rules on transparency and good governance will be more influential on him than New Zealand law.

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