Patrick McGrath

BA,LLB(Hons) MComLaw(Hons)
Patrick McGrath

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Full and Final Settlement not so Final

Blurred boundaries won’t do if the parties really want to put all matters arising out of a previous employment relationship behind them. 
Patrick McGrath reports. 

A number of employers and employees may be surprised by a recent High Court judgment which could be seen as overriding a settlement agreement – Gilman v Residual Health Management & Ors (High Court, 2/12/1999, Ellis J, Wellington, CP 117/97).

Complaint and Dismissal
Mrs Joseph was employed as a psychotherapist at Wellington Hospital until 28 May 1996 when she was dismissed. The disciplinary process focused on allegations that Mrs Joseph diverted Wellington Hospital patients to her own private practice and that her records and reports were seriously deficient.

While the disciplinary process was underway, a letter of complaint received from Ms Gilman, one of Mrs Joseph's patients, complained of 'privacy issues, absence of concrete relationship boundaries, and excessive sharing of her personal life':

· This complaint was part of the factual background but was not specifically given as a reason for the dismissal;

· The letter of termination referred to a 'conflict of clinical and business interests', 'blurring of boundaries', acting in a misleading manner at the interview stage and having poor documentation.

The Settlement
Following her dismissal, Mrs Joseph issued personal grievance proceedings which were settled at a mediation. The terms of settlement were reduced to writing in what may be described as 'standard' terms, including a payment to Mrs Joseph as 'full and final settlement of all claims arising from the applicant's employment with the respondent and the termination thereof'. The settlement agreement was signed by the parties and endorsed by the Employment Tribunal.

Patient's Complaint
Ms Gilman subsequently issued proceedings in the High Court against the operators of Wellington Hospital, alleging breach of contract and negligence. The complaint focused on the alleged treatment of Ms Gilman by Mrs Joseph.

Several months before the settlement of the personal grievance:

· In a telephone conversation with the Hospital's legal counsel, Ms Gilman's barrister outlined her complaint and said he would issue proceedings if the matter was not settled; however

· No 'formal' complaint had been made by the time the Hospital settled the personal grievance with Mrs Joseph.

After Ms Gilman issued proceedings, the Hospital applied for and was granted an order adding Mrs Joseph as a third party, alleging that any breach of contract for negligence was a result of Mrs Joseph's conduct.

Mrs Joseph applied to have the claim against her struck out on the grounds that all matters between her and her former employers had been fully and finally settled. Master Venning of the High Court dismissed Mrs Joseph's application. Mrs Joseph appealed from that decision to a High Court Judge.

In the High Court
Justice Ellis dismissed Mrs Joseph's application. His Honour held that the words 'full and final settlement' in the settlement agreement:

· Were limited to the personal grievance;

· Did not cover settlement of all and every dispute which may arise between the parties.

His Honour stated:

'Here the dispute was the claimed unfair dismissal and the losses thereby occasioned, not the possibility of a claim by a third person against the defendants. Nor would it be a settlement which would have precluded Mrs Joseph seeking indemnity from the defendants is she had been sued directly by the plaintiff. I do not say Mrs Joseph would have succeeded but use the illustration to emphasise my view of the words of the settlement.'

The result is that the Hospital was able to continue to seek an indemnity from Mrs Joseph as Ms Gilman's case against the Hospital proceeds. As his Honour's comment above shows, it could just as easily have been Mrs Joseph adding the Hospital in as a third party if Ms Gilman had elected to bring proceedings against her personally instead of the Hospital.

While it seems Ms Gilman's complaints were not the focus in Mrs Joseph's dismissal, the allegations were known and discussed prior to the dismissal and formed part of the background. Further, although no written complaint was made, Ms Gilman's barrister notified the Hospital of her claim before the Hospital settled with Mrs Joseph.

It was foreseeable at the time of the settlement of the personal grievance, that Ms Gilman could well make claims against Mrs Joseph and/or her employers arising out of at least some of the allegations which resulted in Mrs Joseph's dismissal. In that situation, if either party wanted to reserve the right to bring a claim against the other if one of them was the target of a claim by Ms Gilman, should they not have said so in their agreement?

This case, and those referred to in Justice Ellis' judgment, show that an intention to release an unknown claim is not lightly to be inferred, even when apparently very general words have been used.

If the intention of employers and employees in settling their disputes is really to put all matters relating to the previous employment relationship behind them, including claims relating to matters which are not known (or known but not formally notified) at the time of settlement, this needs to be very clearly stated. Otherwise the parties may be surprised to find that a settlement agreement which they thought was truly full and final is not final after all.

Those tempted to use standard form settlement agreements need to be particularly careful.

Patrick McGrath, Auckland
First published in Employment Today, March 2000