Should you offer “go away” money?

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When workplace situations escalate into legal cases, going to court isn’t always the best option for employers.

“The reality of a lot of litigation, whether in the employment context or elsewhere, is that parties to proceedings need to be mindful of a whole range of ramifications and implications of the matter going to court,” People+Culture Strategies managing principal Joydeep Hor told HRM.

“There’s the cost of lawyers, but perhaps more importantly there’s downtime, opportunity costs within the organisation, issues around distractions for people and often, increasingly so in the employment context, there’s media scrutiny. It’s not surprising that a lot of employers or companies will say that, ‘As much as it sticks in our craw to have to pay anything for this, we just want to make it go away’.”

In that situation, it was important for employers to be circumspect about several aspects.

“One is that while these things are typically intended to be confidential settlements, it’s not unusual for people to find out. If you’re settling a claim with a former employee, they’re often in touch with former colleagues and it’s really hard to police. The employer will often not know who knows about the details of the settlement.

“The people involved from the company’s point of view in deciding what the amount should be then become aware of it, obviously, but they may become a litigant against the company further down the track.”

The second issue to consider was whether or not a point of principle was involved.

“For example, if an employee has been dismissed for misconduct or engaging in inappropriate behaviour and the employee is seen to be rewarded for that through go away money, what does that say about the organisation from a culture and values point of view? There is the need for consideration of the consequences of these kinds of settlements.”

Dundas Street Employment Lawyers partner Blair Scotland told HRM that although employers and employees negotiating a mutual departure in the event of a relationship issue was relatively common, mediation was often a better option.

“Because we’ve got a statutory framework under the Employment Relations Act that allows parties to go to mediation run by the Ministry of Business, Innovation and Employment, you do find a lot of employers and employees opt for that option – mainly because it’s a safe environment, anything that’s said in the course of that mediation is confidential, it can’t be used against either party and you have the benefit of having a trained mediator there who can guide the parties towards a resolution that meets everybody’s needs.

“The mediator can also draw up a written settlement agreement and get everybody to sign it off.”

Scotland said that although mediation was seen as the primary resolution process, it didn’t preclude parties in an employment relationship from directly negotiating an exit or some form of resolution.

“There are some potential dangers in doing that, the key one being that the conversation may not ultimately be held to be confidential, even though that might be what the parties agree at the outset. What was discussed could be used as evidence, particularly against the employer. It could result in constructive dismissal, personal grievance or some other claim.”

Scotland said that he advised most employers who wanted to be “honest, open and frank” to opt for mediation.
  • Bruce on 20/02/2015 3:39:12 p.m.

    Hmmm maybe the moral is don't use a sledgehammer to crack a walnut ;-) a principled, global assessment would show whether an employee had a genuine grievance that needed to be resolved or whether it was indeed a frivolous action. Litigation is an expensive way of resolving employment relations, especially in the Land of the Free.

  • Grant on 20/02/2015 9:38:03 a.m.

    Tourisgt buses for San Diego and Mexico were mostly based in Orange County California. One bus company decided to go to court for every action brought against it. Within three years their positon was widely known by all local legal firms and within five years they no longer faced any flawed or frivilous legal action, despite being in the most litigious part of the USA. Moral?

  • Graeme on 15/09/2014 11:50:33 a.m.

    If you're looking at terminating an agreement and given the risk of constructive dismissal etc., always get legal advice; then as with Bruce, apply pragmatism get a lawyer checked off agreement and get it signed by a mediator. They ring both signatory parties prior to their signing to ensure the stated terms are understood and agreed to. Even with the consult the lawyer fee it is still a cheaper option than mediation, which should be only if needed.

  • Bruce on 10/09/2014 1:25:31 p.m.

    It's ideally a weighing up of pragmatism and principle that decides on whether to pay out or litigate. At the 'lower end" pragmatism is dominant, and at the minimum a properly drafted settlement agreement signed off by a MBIE mediator.

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