You want hush money? No, you pay us. And zip it – by Karen Davis

Most mediations end with the employee party agreeing to resign in exchange for compensation for the disruption to their career. Terms usually include payment for a non-disparagement and/or non-disclosure clause, in case the employee remains aggrieved, despite the payout, and might talk about whatever made them leave.

Here are some examples of what an employer might need protection from, that may be worth paying for:

  • If a former employee disclosed to remaining employees what the payout was, that might encourage colleagues to raise personal grievances themselves, which could be disastrous for morale and productivity.

  • The employee’s Employment Agreement may have had generic confidentiality clauses, but if a personal grievance had been raised, leading to a mediation, the employer may feel that the confidentiality provisions are not specific enough under the circumstances.

  • The departing employee may know a lot of people in the industry which could raise concerns about the employee holding a grudge and bad-mouthing the organisation, hence the non-disparagement clause which may include terms under which the employee may be provided with an employment reference.

When it comes to consideration, Member Robinson made a determination in 2016 declaring a Record of Settlement (RoS) valid despite the lack of a payout. That might have meant it wasn't actually a settlement contract, but Member Robinson had a solution to that.

[45] I note that a record of settlement made pursuant to s 149 of the Act is a statutory instrument, and as such does not require consideration.

That's an entirely new legal point from Member Robinson, not found anywhere else in the law.

The abstract reads:

AUTHORITY FOUND –JURISDICTION: Respondent body corporate and therefore able to enter into ROS. Acting HR director had authority to enter into ROS on behalf of respondent. ROS does not require consideration to be given. In any event, ROS contained terms of settlement favourable to applicant. Insufficient evidence of fraud or improper pressure. ROS full and binding on all parties. No jurisdiction.

While that's not very clear, if we’re going to be pedantic, the employer did pay the employee’s lawyer in the above example, and that could technically be called a “benefit”. But any employer that thinks that’s "favourable" enough is just asking for trouble.

There are sinister aspects to this personal grievance that we’ll return to just briefly in this article, in the interestes of keeping it short. But the abstract notes that the acting HR director signed the RoS on his employer’s behalf, and he obviously didn’t think there was a need to compensate the employee directly for giving up their job. There were consequences down the track that cost the employer a lot of money.

We’ll move onto a 2021 matter where Member Campbell imposed a modest penalty for breaching a non-disparagement clause in a RoS. The penalty was $500, plus a similar amount in costs. Ms Aucamp was found to have disclosed to mutual acquaintances how much the settlement was and disparaged the director. What was unusual about this case was that under the terms of the RoS the payment went the other way!

[12] (a) Ms Aucamp told her “...he took me for [$ amount withheld]” while pointing toward OneAir offices...

(d) Ms Aucamp confirmed she had seen some of OneAir’s clients and Mr Schagen had found out...

From [12] (d), while we can’t be sure, it appears that Ms Aucamp was attempting to solicit some of OneAir’s clients possibly in breach of a restraint of trade clause, and agreed to make a payment to avoid ERA proceedings. And as well as making that payment, she was also bound by the RoS to maintain silence.

Now we’ll go back to the 2016 determination where Member Robinson said there was no need to compensate an employee for the loss of their job for the RoS to be final, binding and enforceable. That's because she said it wasn't a settlement contract but a type of legislation. The former employee challenged the determination to the Employment Court, because it had been a constructive dismissal case which Member Robinson did not deal with. More evidence of fraud was discovered while the employee was waiting for the determination. Those proceedings went as far as including an application for disclosure for originating IP addresses of emails that were extremely damaging to another manager, which were sent by her manager to himself from her office computer while she was outside the office. But before that was discovered, the employer made a claim against the former employee for breaching the non-disparagement clause in her RoS by talking about the faking of record. ERA Member Fitzgibbon ordered her to pay a $8,500 penalty. Of that amount, her former managers Mr X and Mr Y got $3,750 each. This was all unprecedented and a wholly new approach to the process of justice.

Even though the employment relationship ended seven years ago, the employer had its lawyer send a Cease and Desist letter just last month about the naming of Mr X and Mr Y to a small audience, even though just about everyone in the industry knows who they are, what they’ve done, and what the courts did to protect them.

An MBIE mediator’s role is to supervise the mediation. We'd expect them to make sure there’s no illegal activity, like threats of violence for example. Gagging whistleblowers is an area where unscrupulous lawyers have been known to push their luck with mediators, to get the result their client wants. Some mediators are more diligent, but others are reputed to bully employees into settling for whatever the employer is offering. Lawyers attempting to cover up serious wrongdoing are able to tailor their approach according to who the mediator and opposing counsel are, what documents they possess, and what documents and evidence they want surrendered as part of the settlement. A combination of an employee’s representative prepared to sell their client out to the other side, and a lax mediator, could spell disaster for both parties. (Then again, it's a real opportunity if both parties want to hide something and pay themselves company money as well.)

Since December 2016 when Member Robinson found that a certain RoS was valid, presumably to the relief of the employer, that employer spent a further estimated $500,000 on the matter including in High Court proceedings, adding to the repetitional damage by trying to stop it.. So how’s that RoS working out?

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