Employment disputes settled out of court are binding, but as contracts promising not to sue the normal rules of contract law apply; they can be challenged. A former Defence employee argued that the agreed outcome of her mediated employment dispute was invalid because she was mentally ill at the time.
The unnamed employee alleged discrimination and workplace bullying. She agreed to a confidential out of court settlement in December 2015. The Court of Appeal was told there was no formal mediation process. After correspondence between her lawyer and Defence, a mediator from Business, Innovation & Employment spoke to her by phone to confirm settlement details. The mediator then issued a ‘section 149 certificate.’ Under the Employment Relations Act, these certificates block any further legal proceedings, other than legal steps necessary to enforce an agreement.
The certificate bars any further legal dispute over agreed terms of settlement, the Court of Appeal said, but that pre-supposes there has been an agreement. There is no ‘agreement’ if the terms were unconscionable, the employee lacked contractual capacity or acted under duress. There was no evidence that the out of court settlement in question was unconscionable, or the result of duress. Suffering mental illness at the time of settlement, the Defence employee did not have any contractual capacity to agree to its terms. However, general rules of contract law require the other contracting party be aware of any mental incapacity before a contract is set aside. Without this rule, businesses would demand letters from doctors and lawyers vouching for their client’s mental status before entering into significant transactions, the Court of Appeal said. Neither Defence nor her lawyer were aware of the employee’s mental illness. She had been on extended leave for stress. The confidential out of court settlement stood.
TUV v. Defence – Court of Appeal (11.02.20)
20.029