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If you have had to terminate the employment of an Employee and then endure the following 90 days to see if they raise a personal grievance or not, you will know how stressful this can be. Many Employers are therefore turning to full and final Settlement Agreements to give them piece of mind in their dismissal decisions.

With the statistics from the Employment Relations Authority confirming that Employees have about a 4:1 chance of winning a personal grievance claim, Employers are becoming increasingly concerned about the potential costs and liabilities about terminating the employment of a staff member where the decision may be marginal or where, due to the nature of the Employee, the high potential of a personal grievance being raised is present.

An Employee does not have to have clear justification or evidence to raise a personal grievance, however, when this does occur, the costs to either defend the claims or to seek to settle can be significant.

Many Employees are therefore taking a more pragmatic approach in saying that, the small cost of settling with the Employee during the early stage may be more commercially prudent than incurring greater costs in the long run of seeking to defend a claim. This is not to say that where the Employer believes that the decision to dismiss an Employee, based on a procedurally fair process and sound justification, should not still be the preferred option.

However, if there are any questions of risk emerging, the only viable option to ensure that the ability to raise a personal grievance is removed is to ensure that a full, final and binding Settlement Agreement is entered into by the parties at the time the termination decision is to be made.

To be enforceable such agreements must be drafted pursuant to s149 of the ERA 2000 and must be endorsed by a mediator of MBIE. Not all disputes need to go through a full mediation process to be resolved through a s149 Agreement and therefore this presents a very viable option for the Employer.

Under this provision compensation payments can be provided on a tax-free basis, but only if the Settlement Agreement is correctly endorsed. In Miller v Kiwi Elderly Care Ltd the parties attempted to conclude the employment relationship through a Settlement Agreement, however as this was not executed in the correct manner the Employee was still able to raise a grievance and was successful in being awarded $12,000 for Hurt and Humiliation and $3,900 for lost wages by the ERA. 

The challenge in seeking to present a Settlement Agreement to the Employee at the time of potential dismissal is in the approach – with an incorrect action potentially resulting in a claim of Constructive Dismissal if the settlement is not accepted.

This is therefore an entirely valid and effective method to resolve a dispute or achieve a ‘no risk’ exit, but only if executed professionally.

If you wish to learn more on how to apply this approach in an effective manner please feel free to give us a call on 07 838 0018.


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