What Does "Non-Disparagement" Actually Mean in a Record of Settlement? Lessons, Limits, and Legal Realities
In my day to day work as an employment advocate, I am involved in a lot of mediated workplace settlements across New Zealand. Whether negotiations take place through MBIE Mediation Services or in private direct discussions, roughly 99% of the resulting agreements include a standard clause: non-disparagement.
I make it a point to impress upon both employers and employees exactly what this clause entails. Too often, parties treat it as boilerplate "fine print." It is not. It is a strictly enforceable, enduring legal commitment, and the Employment Relations Authority (ERA) will not hesitate to impose significant financial penalties for breaching it.
The Mutual Value: Why Both Sides Need It
A non-disparagement clause is not designed to silence healthy discourse; its core purpose is to draw an absolute, final line under the employment relationship so both parties can move forward safely.
For Employees: It safeguards your professional reputation, commercial standing, and future career prospects. It ensures a former manager cannot quietly blackball you to industry contacts, warn prospective employers off hiring you, or taint reference checks.
For Employers: It insulates business goodwill, brand reputation, and staff morale from post exit venting. It prevents a disgruntled former worker from launching an online campaign or trashing company leadership to clients or suppliers.
The Legal Benchmark: What Counts as "Disparagement"?
The Employment Court in Lumsden v Skycity Management Ltd (frequently cited across Authority determinations) adopted a broad, robust definition of what it means to disparage:
To bring discredit or reproach upon, dishonour, or lower in esteem;
To degrade, lower in position or dignity, or cast down in spirit; and
To speak of or treat slightingly or critically, vilify, undervalue, or depreciate.
Crucially, falsity is not a requirement. A remark does not have to be an outright lie or defamatory fabrication to breach a settlement agreement. Even a technically truthful comment or an implied critique amounts to disparagement if it degrades or casts a negative light on the other party.
The Real Consequences: How the ERA Deals with Breaches
The ERA routinely enforces section 149 settlements and holds offending parties to account with punitive penalties under section 149(4) of the Employment Relations Act 2000. Several key decisions demonstrate the breadth of how breaches arise:
1. Subtle Blacklisting and Over zealous Probes: Powdrell v The Partners of the Bayly Partnership [2022] NZERA 95
Following a farm manager's departure under a Record of Settlement, the employer hired a private investigator who linked the employee to alleged fraud while interviewing dozens of rural contacts. Furthermore, the operations manager contacted local stock transport operators, intimating that if they continued to do business with the former manager, the station would withdraw its commercial patronage.
The Authority held that implying someone is persona non grata or "asking third parties to pull back" is disparagement. Finding systemic, sustained breaches, the ERA imposed total global penalties of $28,750 ($22,750 in respect of Mr Powdrell and $6,000 for Mrs Powdrell), ordering 75% of the penalties to be paid directly to the harmed individuals.
2. Internal Communication Failures: Finegan v Electrical Contractors Association of NZ (ME) [2026] NZERA 63
In this case, an association's CEO signed a confidential settlement containing a non-disparagement clause with an exiting employee, but did not brief board members on the obligations. A board member subsequently told a prospective employer that he "would not employ" the worker.
The ERA found that an employer cannot hide behind siloed governance. If an organisation enters a non-disparagement bargain, it must implement an internal mechanism to ensure governance figures who can bind the organisation know not to disparage. The association was hit with an $8,000 penalty, with $6,000 directed to the employee.
3. Post-Employment Whistleblowing Traps: An Engineering Consulting Firm v PQR [2018] NZERA Christchurch 182
Here, an employee who signed a settlement later raised safety complaints about former colleagues to an industry body (Engineering New Zealand), attempting to claim whistleblower immunity under the Protected Disclosures Act.
The Authority scrutinised the background and found the employee had not acted in good faith, had failed to adhere to statutory processes, and was motivated by unresolved personal grievance animus. The disclosures breached the non-disparagement and full and final settlement terms, resulting in an $8,000 penalty against the individual.
Non-Disparagement vs Mandatory Reporting: The ECE Reality
A challenging collision point arises in licensed and registered sectors particularly Early Childhood Education (ECE). Under the Education and Training Act 2020, ECE service providers and school boards operate under strict statutory duties to report dismissals, resignations during conduct investigations, or serious misconduct concerns to the Teaching Council of Aotearoa New Zealand.
In practice, a disturbing pattern occasionally emerges: when employment relationships break down, personal grievances are met with sudden, retaliatory allegations. Some Centres appear to weaponise mandatory reports threatening or lodging them vindictively to intimidate teachers or deflect from their own governance failures.
This tension was tested directly before the ERA in McConchie v St Albans Community Preschool Incorporated [2024] NZERA 705, where I represented the Applicant.
In that case, the teacher had settled personal grievances under a section 149 Record of Settlement containing a standard non disparagement clause. Following her departure, the preschool submitted a mandatory report to the Teaching Council detailing serious unproven allegations and parent complaints. We challenged the preschool’s report in the Authority, arguing that forwarding those claims in that manner was disparaging and breached the settlement agreement.
Why That Challenge Was Vital
While the Authority ultimately dismissed the claim, bringing the challenge was critical. Employers cannot be given carte blanche to use regulatory reporting as a backdoor weapon to undermine mediated settlements without scrutiny.
The determination set out clear operational boundaries:
Statutory Duty Trumps Settlement Terms: An employer cannot contract out of a mandatory reporting duty imposed by Parliament. Even if a settlement agreement is silent on it, mandatory reporting takes precedence.
Facts vs. Opinion: The Authority clarified that reporting purely factual occurrences (e.g., stating an investigation commenced, or attaching third-party complaint letters received) does not constitute disparagement under employment law. A breach occurs only if the employer steps beyond the raw facts to offer unsubstantiated slurs, personal conclusions, or gratuitous opinions about the teacher's character.
Practical Guidance for Both Parties
Before signing or acting on a settlement agreement:
Employers Must Manage the Narrative Internally: If you agree to a non-disparagement clause, you must establish who in your management chain and governance board needs to be quietly instructed to maintain that silence. A casual, negative off the cuff remark to an industry contact can cost your business thousands.
Employers in Regulated Sectors (ECE/Healthcare): Ensure any regulatory filing is strictly neutral and objective. Stick exclusively to verifiable facts, procedural timelines, and copies of source records. Never insert emotional commentary or subjective judgments.
Employees Must Let Go: A non-disparagement clause means complete closure. It prohibits venting on social media, whispering to former coworkers, or resurrecting historical workplace complaints under the guise of casual conversation.
A Record of Settlement provides certainty and closure, but only if both sides treat its covenants with vigilance and mutual respect.
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