Employment Relations Authority Sets the Bar Low for Employer Breaches of Non-Disparagement Clauses
About the Author:
John Farrow
Partner at Anderson Lloyd
Partner John Farrow co-leads the Employment Team at Anderson Lloyd . His expertise covers the full range of employment matters, including those which involve criminal and civil aspects.
In a recent decision, the Employment Relations Authority imposed a penalty on an employer for providing a verbal reference in breach of a Record of Settlement.
THE FACTS
An ex-employee (A) claimed his former employer (B) breached a Record of Settlement entered into by the parties. The agreement required the parties not to disparage the other. It also provided that when contacted by prospective employers of A, B would restrict its comments to those consistent with the agreed text of the written reference. This reference spoke to A’s professionalism, analytic skills, process following and personnel management.
A received three provisional offers of employment, yet each was withdrawn following a reference check. A claimed this resulted from the following breaches by B:
When prospective employers asked B whether they would employ A again, B answered “no”. A alleged this amounted to disparagement.
When asked by prospective employers why they would not employ A again, B referred to his failure to align with the organisation’s values. A alleged this was inconsistent with the text of B’s written reference.
A sought compliance and imposition of a penalty.The issues for determination
Whether B breached the settlement agreement.
Whether compliance should be ordered.
Whether a penalty should be imposed.
1. Was the settlement agreement breached?
The Authority found B committed both alleged breaches. Answering “no” to employing A in the future “introduced a negative and judgmental element” which was disparaging. It did not matter that the conversation was not initiated by the respondent. B, in referring to the organisation’s values as the reason for this, also breached the settlement agreement because there was no mention of B’s values in the written reference, norwas there any implication that A’s behaviour or attitude did not align with those values.
2. Should compliance be ordered?
Compliance was ordered. It was “more likely than not” that the disparaging comments and inconsistencies with B’s written reference played a significant part in the withdrawal of the three offers of employment. It did not matter there was no absolute evidence of this.
3. Does B deserve a penalty
A penalty of $3600 was imposed for each breach ($10,800 in total). The provisional starting point was $12,000 for each breach to recognise the severe financial pressure A was under as a result of the breaches. However, the penalty was reduced because of B’s community role as a not-for-profit organisation and because they were running at a $4.0 million deficit at the time. Proportionality to penalties imposed in recent cases concerning non-disparagement clauses was also a factor in reducing the penalty.
What are the Options for Employers?
Not agreeing to speak verbally to a written reference at all is one option. However, in today’s world, this is not entirely practical – prospective employers more often than not will follow up on a written reference to hear from a past employer directly. This allows prospective employers to ask questions specifically tailored to their recruitment criteria.Another option is the parties could agree that if the employer is asked anything not directly covered by the written reference, they will simply respond to the effect that company policy prohibits any additional comment.
In any case, we think it’s best to front-foot this issue with the employee at the time of settlement, to avoid a possible breach and the subsequent penalties that could follow.
Partner, Dunedin
Anderson Lloyd
(03) 477 3973
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