Worker says he misunderstood terms — is it enough to justify overturning deal?
The Employment Relations Authority (ERA) recently dealt with a dispute between a worker and an employer over a settlement agreement reached after the worker resigned. The worker later argued that he had been misled into signing the agreement and sought to have it cancelled.
At the center of the dispute was the employer’s assignment of certain debts to the worker as part of the settlement. The worker believed that these debts were still valid and recoverable.
However, after attempting to collect the assigned amounts, he claimed that a shortfall existed and that he had been mistaken about the nature of the debts at the time of signing. He initially sought to modify the agreement but later pursued its complete cancellation.
The employer disputed these claims, arguing that the worker had been fully aware of the debt status at the time of mediation. The employer maintained that the agreement had been entered into voluntarily and that cancelling it would undermine the purpose of employment settlements. The ERA was tasked with determining whether a qualifying mistake had been made and, if so, whether it justified setting aside the agreement.
The worker was employed by the employer from November 2016 to September 2017. Upon resigning, he raised a personal grievance, alleging constructive dismissal.
To resolve the dispute, both parties attended mediation in November 2017 and signed a Record of Settlement, which was certified under section 149 of the Employment Relations Act 2000.
A key term of the settlement was that the employer would assign certain invoices to the worker, amounting to no less than $43,292.20. At the time, these invoices had already been written off by the employer, a fact that the worker was aware of.
However, after recovering only $38,395.48, the worker claimed that he was still owed $12,814.58 and sought either an amendment to the agreement or its cancellation.
The worker's request was based on his belief that the employer had misrepresented the status of the invoices at the time of settlement. He alleged that he had been led to believe they were valid debts that could be recovered in full, and that the employer’s failure to clarify otherwise constituted misleading conduct.
The employer, however, maintained that the worker had been made aware of the invoices’ status prior to mediation and had willingly assumed the risk of recovering the amounts.
The worker argued that he had been misled into believing the invoices were still valid and that there was a genuine opportunity to recover the full amount.
He said this misunderstanding constituted a legal mistake, entitling him to cancel the agreement. Additionally, he claimed financial loss and emotional distress due to the employer’s actions, seeking further compensation.
The employer rejected this argument, stating that the worker had full knowledge of the invoices being written off before signing the agreement. According to the employer, the worker voluntarily accepted the risk of collecting the debts and had no grounds to claim he was misled. The employer also argued that overturning the agreement would set a precedent that could weaken the integrity of employment dispute settlements.
The ERA reviewed witness statements from the worker, the employer’s director, and an external debt recovery expert. The worker’s recollections conflicted with some of the documentary evidence, and during the investigation, he acknowledged that some of his statements were incorrect.
The ERA found that the worker himself had proposed the debt assignment during mediation. The employer’s director stated that she had raised concerns about whether the worker could legally collect the debts, as he was not authorised to practise independently. According to the director, the worker acknowledged this risk but still agreed to proceed with the settlement.
"[The worker] was aware that the invoices had been written off and entered into the agreement regardless. Any misunderstanding was not induced by [the employer]," the ERA said.
The ERA also noted that the worker had received notice three weeks before mediation that the invoices had been written off. Despite this, he did not seek further clarification from the employer before signing the agreement. Instead, he later relied on the settlement terms to recover payments from the employer’s former clients.
The worker had recovered a significant portion of the assigned amounts, but one invoice had been settled for a lower amount than expected. He claimed this resulted in an unfair shortfall, but the ERA found that he had knowingly taken on the responsibility of collecting the debts and that the agreement had functioned as intended.
The ERA determined that there was no qualifying mistake under the Contract and Commercial Law Act 2017. Even if the worker had misunderstood aspects of the agreement, this did not create an unfair contract that would justify cancellation.
The ERA pointed out that the worker had successfully recovered most of the assigned debts, demonstrating that the agreement had served its intended purpose.
"The evidence shows that [the worker] took steps to recover the assigned debts and was largely successful in doing so," the ERA stated. "The fact that one invoice was settled for a lesser amount does not establish a fundamental contractual flaw."
The ERA also reinforced the importance of employment settlements, stating that cancelling an agreement could undermine confidence in dispute resolution. "Cancelling the agreement would be inconsistent with the purpose of the Employment Relations Act, which promotes early resolution of disputes," it said.
Additionally, the ERA noted that employment settlements are meant to provide finality for both parties and that setting aside agreements on the basis of misunderstandings that could have been clarified beforehand would weaken their enforceability.
The ERA ruled that the settlement agreement would remain in effect and denied the worker’s request for cancellation or additional compensation. "The agreement was entered into voluntarily and with sufficient knowledge of the circumstances," the decision stated.
