Misrepresentation makes settlement agreement invalid…

The Employment Relations Authority has held that a settlement entered into at mediation was invalid.  An employer was looking at a possible redundancy situation and entered into negotiations with the employee which arrived at a settlement with compensation.  During the negotiations the employer mistakenly advised the employee that no redundancy compensation would be payable if the employee was made redundant.  That was not correct and under his employment agreement the employee would have been entitled to redundancy compensation.

The employee later realised that they would have been entitled to redundancy compensation and sought to set aside the settlement agreement.  They brought the claim in the Employment Relations Authority and the Authority agreed that, because of the mistaken misrepresentation by the employer, leading to both parties having a mistaken view, the settlement agreement entered into was invalid.

The ERA then went on to consider what the employee would have been entitled to by way of redundancy and found that the settlement agreement actually paid him more than the redundancy.  Therefore although it set aside the settlement as invalid it did not award any remedies because the employee had already been paid more than he would have been entitled to by way of redundancy.

Costs were not awarded to either party because both were at fault.  The employer for misleading the employee accidentally, and the employee for lodging launching into proceedings which were not going to bring a better result than they had already achieved.



Alan Knowsley
Employment Lawyer
Wellington