It’s not uncommon for someone to want to let off steam at the end of an employment relationship, especially if the relationship ended on bad terms. However, if you’ve entered into a record of settlement the terms will almost always include a non-disparagement clause, imposing limits on how the parties speak about each other.
Following on from our earlier article on ‘what’ records of settlement are, this article provides the who, why, when, what and how on this more specific area of non-disparagement clauses.
Who?
Employees are clearly bound by the non-disparagement clauses in their personal capacities. However, where an employer is a legal entity, it can be less clear whose comments actually attract liability.
In this case, liability is generally limited to those who are actually aware of the employer’s obligations under the record of settlement or are acting on behalf of the employer. This means that gossip amongst remaining staff members does not amount to a breach, unless gossip comes from someone aware of the employer’s non-disparagement obligations.
Why?
Non-disparagement clauses can protect an employer’s business and an employee’s future job prospects. Because of this mutual benefit, they are boilerplate in records of settlement that can be adapted to suit particular circumstances.
When?
Unless a non-disparagement provision specifically contains a sunset date, they apply indefinitely from when a record of settlement is final, binding and enforceable.
What?
So, what is allowed under a non-disparagement clause? In short, it depends.
Broad definitions of “disparage” have been accepted in the Employment Court, including:[1]
- bring discredit or reproach upon; dishonour; lower in esteem;
- degrade, lower in position or dignity; cast down in spirit; and
- speak of or treat slightingly or critically; vilify; undervalue, depreciate.
This means that truthful or unintentionally negative comments can be captured and land someone in hot water. Balancing this however, the Employment Court has also provided that non-disparagement clauses should be read in their context and with regard to the parties’ intentions.
More recently, in Madden v Bay Holdings Limited [2021] NZERA 523, the Employment Relations Authority (Authority) held that the bank transfer description “Mental Stress” amounted to a breach of a clause that required neither party to “speak ill of the other verbally or in any medium, including social media”. In this circumstance, the Member considered the words were derogatory and targeting the employee.
While Madden has not been tested, we think it is unlikely to significantly extend liability for disparaging comments in all circumstances. Specifically, if a non-disparagement clause is qualified as relating to third party or general public communications, then potentially disparaging communications directed only to the other party (while not a good idea) would not breach this. However, where a provision is more general, there is a greater risk of conduct being caught in this scope.
In light of the above, we generally advise clients to carefully consider the particular wording of a non-disparagement clause to understand where you may be liable. In these instances, erring on the side of caution goes a long way to avoid further litigation or penalties being awarded in future.
How?
If someone has made disparaging comments in breach of a record of settlement signed by a mediator, recourse is only available through the Authority or the Employment Court. The breaching party may be liable for a penalty.
Even if a record of settlement has not been certified by a mediator, the Authority may still have jurisdiction in enforcing a record of settlement.[2] However, it is unclear what remedies the Authority may award in these instances.
[1] Lumsden v Skycity Management Ltd [2017] NZEmpC 30 at [36].
[2] FMV v TZB [2021] NZSC 102 at [99] and footnote 163.
