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Penalty for breach of Confidential Settlement Agreement

June 2017

The Employment Court has recently imposed a penalty of $7,500 on Sky City Management Limited (“Sky City”) having found Sky City to have breached a confidential settlement agreement signed by a mediator in accordance with the provisions of the Employment Relations Act 2000.

Factual Background

Sky City and one of its employees (a Mr L) were involved in an employment dispute. They agreed to refer the dispute to mediation at the conclusion of which a settlement agreement was signed. Amongst other things the agreement provided that Mr L would resign from his employment with effect from that day and neither party would make disparaging comments about the other party. The relevant clause went on to state that “this includes no disparaging comments to past, existing or prospective staff, prospective employers, internal and external stakeholders or to the general public…..”.

The agreement also noted that Mr L was welcome to apply for future employment with Sky City. The mediator certified the employment agreement in accordance with Section 149 of the Employment Relations Act, which has the effect of it being a binding and enforceable agreement.

Sky City maintained a human resources computer system. Immediately after the settlement agreement was signed the computer system was updated by Mr L’s former manager who entered “no” in the tick box titled “would you re-employ?”. The form also included room for the manager to insert additional comments in which Mr L’s manager had made the following notes:

“outstanding performance issues, staff and customer complaints, not a team player, major attitude change, became very difficult to manage as he wouldn’t follow management’s directions”.

Disparaging comments

Sky City argued that the comments referred to above were not disparaging because they were factual or truthful in nature given that they represented the manager’s views at the time. However, the Employment Court dismissed this argument noting that if that were the case, Mr L would be free to air his personal views (presumed to be true) about Sky City’s employment practices. Furthermore, the Court noted that remarks need not be untruthful or fabricated in order to be disparaging. The Employment Court also noted that the comments in the form were directed at allegations about Mr L that had not been investigated or established at the time they were written. As such, the Employment Court found that the remarks were plainly disparaging of Mr L and were made available to prospective internal employers or stakeholders in breach of the settlement agreement.

Further breach

As noted above, there was also a provision in the agreement that Mr L was able to apply for future positions. There was evidence that he had done so on no less than four occasions, all of which were unsuccessful. Sky City argued that there had been no breach because the clause simply meant what it said, namely that Mr L was able to apply for future positions and indeed had done so. In effect, Sky City argued that all that was required was for Mr L to be able to fill in an employment application and that at that point Sky City’s obligation ended. The Employment Court dismissed this argument, noting that the clause would have been completely pointless if that were the case. However, it did not follow that Mr L was entitled to succeed when he applied for employment. The Employment Court held that by inserting the “no” to the re-hire question in the human resources computer system, which Sky City acknowledged had been a factor in Mr L’s subsequent employment applications being unsuccessful, also breached the Employment Agreement.


The Employment Court ordered Sky City to pay $7,500 by way of a penalty for the two breaches of the settlement agreement. 75% of that amount was directed to be paid to Mr L with the remainder to be paid to the Crown.

The case should serve as a reminder that parties who enter into settlement agreements under the Employment Relations Act are expected to adhere to the terms of settlement and that those terms of settlement will be enforced. Parties who breach the provisions of such agreement can expect to be held to account and should therefore reflect carefully before making comment on matters covered by such agreements.