However, many employers are unsure if these discussions will protect them or come back to haunt them in court. Case law shows that trying to negotiate settlement agreements can trigger personal grievances. Employers fear without prejudice discussions could lead to legal claims even when they’ve followed the proper process.
Enter Act MP Laura Trask’s proposed bill. This private member’s bill would amend the Employment Relations Act 2000 by offering clarity and protection of negotiated settlements.
The Employment Relations (Termination of Employment by Agreement) Amendment Bill would let employers agree to end the employment relationship without the risk of a legal crossfire.
Under the bill, employers must get the employee’s consent and offer compensation for a negotiated settlement. Negotiations that meet the bill’s criteria would be protected, avoiding personal grievances and court.
Significant employment relationship problem
Under current law, without prejudice discussions are only protected if you have a “serious employment relationship problem”. This might include formal misconduct allegations or a personal grievance.
What counts as a serious problem is fact-dependent, leaving employers open to legal risk if they attempt to negotiate an exit.
The ambiguity around what qualifies as a serious employment relationship problem creates uncertainty for employers. Without a significant issue, your well-intentioned conversations could be used as evidence of unjustified constructive dismissal.
Trask’s bill would allow employers to discuss exit settlements without any existing serious employment relationship problems.
This proposed change provides employers with certainty that negotiated settlements could not be used against them in court.
Perks of settlement agreements
Under current law, settlement agreements can be a win-win for employees and employers.
Settlement agreements certified as a “record of settlement” under section 149 of the Employment Relations Act 2000 are full and final of all employment matters, so employees can’t raise personal grievances later.
A settlement can help preserve a positive workplace environment, where both parties agree to the employment relationship ending on mutually acceptable terms.
For employers, negotiated settlements offer a quick resolution to employment issues such as poor performance or misconduct, avoiding protracted disputes and legal fees. Favourable terms for employers often include non-disparaging comments and confidentiality.
Negotiated settlements offer employees a dignified exit, without a dismissal tainting their job prospects, and may include compensation.
Pros and cons of bill
The proposed bill would shield employers from potential personal grievances by removing the need for a serious employment relationship problem. This would streamline settlement negotiations without the legal cliffhanger.
The downside of the proposed legislation is the potential impact on employees.
Employees could feel blindsided if they were unaware of underlying issues before a without prejudice discussion. A “shoot first, ask questions later” approach to negotiated settlements could cost employees their jobs where training could have helped them succeed.
Refusing an exit settlement might result in an employee experiencing “quiet firing”, feeling discouraged and insecure in the workplace.
So that employees feel less pressured to accept terms of settlement, the bill requires they be given a reasonable opportunity to seek legal advice.
How to engage in without prejudice discussions
While the bill is still in its early stages and may not become law, employers should take care during exit negotiations. Keep your legal advisers close and communication clear.
Best practices for negotiating without prejudice discussions include:
- Establish a significant issue: A serious employment relationship problem, such as formal allegations of misconduct, must exist before initiating a without prejudice discussion.
- Explain it clearly: Before engaging in a without prejudice discussion, explain what it means: “What we discuss won’t be used in court or any legal forum”. Give the employee an opportunity to seek legal advice first.
- Seek legal guidance: Consult with your employment lawyer before you engage in any without prejudice discussion. Ask them for a script to guide you through the discussion. Seeking advice from a legal adviser will help reduce the risk of a personal grievance.
- Be professional: Keep all discussions professional and avoid making negative or disparaging remarks during negotiations. Give the employee the option to agree to an exit settlement, rather than saying, “resign or be dismissed”.
- Seek mediator certification: Any settlement terms must be recorded on a record of settlement template. The settlement agreement must be signed by both parties and certified by a mediator from the Ministry of Business, Innovation and Employment, so the employee cannot later raise a personal grievance.
