Last updated: 24 October 2026 | Written by Andy Bell, Partner, Lane Neave
Accept an employer’s settlement offer only once you know what your claim is worth, what the terms ask of you, and what getting more would cost. Many New Zealand employment settlements are written into a record of settlement signed by an MBIE mediator under section 149 of the Employment Relations Act 2000. Once the mediator signs, it is final, binding and enforceable, and rarely set aside.
Settlement offers usually arrive after an employee raises a personal grievance, or during a restructure, a disciplinary process or an exit conversation. A personal grievance is a formal complaint that your employer treated you unjustifiably. Under section 114 of the Act you must raise it within 90 days of the action, or of it coming to your notice if that is later (12 months for sexual harassment). If talks fail, the Employment Relations Authority decides the claim and can award remedies under section 123, including lost wages and compensation for hurt and humiliation.
Settlement is the normal outcome. In 2024/25 MBIE delivered 5,130 mediations, with a reported settlement rate of 66%. It also received 13,939 records of settlement, many of them agreed by the parties without a mediation meeting.
The most important practical point is timing. There is no cooling-off period once the mediator signs, and an agreement you sign yourself may bind you even earlier. Get advice before you sign anything.
What is a record of settlement, and why is it final?
A record of settlement is a written agreement that resolves an employment problem. It can be drafted at a mediation, or the parties can write it themselves and send it to Employment Mediation Services for a mediator to sign.
Before signing, the mediator must explain the effect of signing and be satisfied that both parties understand it and still want to go ahead. At a mediation meeting, the mediator writes up the agreed terms and has both parties sign them, so this check can happen there and then. For a record the parties send in, the mediator will usually speak to each party, or email where that is not practical. Mediators do not give legal advice. Under section 148A a mediator must not sign terms in which a party gives up minimum entitlements, such as holiday pay under the Holidays Act 2003.
Once the mediator signs, section 149 makes the terms final, binding and enforceable. Neither party can cancel the agreement, or bring its terms before the Authority or the Employment Court except to enforce them. The courts have accepted that a signed record can be set aside in narrow cases, such as incapacity the other party knew or ought to have known about. In TUV v Chief of New Zealand Defence Force [2022] NZSC 69 the Supreme Court proceeded on that basis and upheld the settlement, because the employer neither knew nor ought to have known of the employee’s incapacity.
A “full and final settlement” clause is usually drafted to cover all claims arising from the employment, including ones you have not thought of yet. Its exact wording decides what it covers, so read it closely.
What terms will a settlement offer usually include?
The money matters, but the other terms often matter as much once you are looking for your next job.
| Term | What it usually says | What to check |
|---|---|---|
| Compensation | A sum paid under section 123(1)(c)(i) “without deduction” | That the amount is truly for hurt and humiliation, and the payment date |
| Lost wages or notice | A sum paid through payroll, less PAYE | Whether it is gross or net, and KiwiSaver treatment |
| Legal costs | A contribution to your lawyer’s fees | Whether it is paid to you or direct to the firm |
| How employment ends | Resignation, or ending by agreement on a set date | Wording you can repeat to a new employer |
| Confidentiality | Neither party discloses the terms | Exceptions for your partner, accountant, lawyer and government agencies |
| Non-disparagement | Neither side criticises the other | Whether the employer must instruct named managers not to criticise you |
| Reference | An agreed reference or certificate of service | That the text is attached, and who will answer calls |
A settlement can include things that are not among the remedies the Authority can order under section 123, such as an agreed reference or agreed wording about why you left. That flexibility is one of the main reasons people settle.
Is a settlement payment taxed in New Zealand?
It depends on what the payment is for. Inland Revenue’s public ruling BR Pub 06/05 says compensation paid wholly for humiliation, loss of dignity or injury to feelings under section 123(1)(c)(i) is not income, so no PAYE is deducted. The ruling rests on a real personal grievance claim, so an exit payment with no grievance behind it is at risk if labelled this way.
Payments for lost wages, notice, bonuses or holiday pay are employment income. Your employer pays them through payroll and deducts PAYE.
Both the wording and the reality matter. A payment that is really lost wages is taxable whatever it is called. In Technical Decision Summary TDS 23/01, the record of settlement described the payments as salary and wages, and Inland Revenue treated them as taxable on that basis, rejecting the employee’s later argument that they were really compensation for hurt and humiliation. TDSs are not binding. This one still shows how closely Inland Revenue reads the wording. Inland Revenue has also said it may ask how the parties worked out the amount paid for hurt and humiliation, so keep a record of how the figure was reached.
How do I tell if a settlement offer is fair?
There is no formula. A fair offer reflects what the Authority would probably award, discounted for the risk of losing and for the cost and delay of getting there.
Start with compensation for hurt and humiliation. In Richora Group Ltd v Cheng [2018] NZEmpC 113 the Employment Court applied three bands: up to $10,000 for lower-level harm, $10,000 to $40,000 for the middle band, and over $40,000 for the most serious cases. In GF v Comptroller of the New Zealand Customs Service [2023] NZEmpC 101 the Chief Judge adjusted them for inflation to up to $12,000, $12,000 to $50,000, and over $50,000.
Where a claim sits depends on evidence of the effect on you, such as sleep loss, anxiety or medical treatment. Our earlier post on compensation for humiliation, loss of dignity and injury to feelings explains how the bands developed.
Before relying on the bands, ask whether your employer can point to anything you did that contributed to what happened. For grievances about events on or after 21 February 2026, section 123C means that if an action of yours contributed, the Authority cannot award any compensation. The section sets no minimum level of seriousness, although early Authority decisions say the action must be blameworthy (Waanders v MSX International Australia Pty Ltd [2026] NZERA 411). Contribution is an all-or-nothing risk to this part of the claim.
Next, add lost wages. Section 128 requires the Authority to order reimbursement of a proven loss up to three months’ ordinary time pay, and it can award more. Section 124 allows that award to be cut by up to 100% for your contribution, none is payable if your contributing conduct was serious misconduct (section 123B), and a quick new job also reduces it.
Then weigh the other risks, such as how strong your evidence is and how long a hearing would take. Under the Authority’s Practice Direction on costs, its daily tariff is $4,500 for the first day and $3,500 for each later day, often much less than real legal fees.
Finally, put a value on certainty. A settlement pays in days or weeks and can include confidentiality and an agreed reference. An Authority determination can take many months, is usually published with names unless the Authority orders otherwise, and can be challenged in the Employment Court.
“The offers people come to regret are rarely the low ones. They are the ones signed quickly, before anyone checked how the payment was labelled for tax, what the reference said, or whether the confidentiality clause stopped the employee explaining a gap in their CV. When I review an offer, I spend as much time on the wording as on the number, because the wording stays in force long after the money is spent.” Andy Bell, Partner, Lane Neave (Legal 500 Asia Pacific Recommended Lawyer)
What does “without prejudice” mean, and what is a Calderbank offer?
A without prejudice offer is made in an attempt to settle and cannot later be used as evidence that the employer accepted it was at fault. Discussions at an MBIE mediation are also confidential under section 148 of the Act.
A Calderbank offer is a without prejudice offer that is open for a set time and marked “save as to costs”. It cannot be shown to the Authority when deciding the claim, but it can be shown when the Authority decides who pays costs.
If you turn down a reasonable Calderbank offer and then do no better, you may have to pay more of your employer’s costs. In a September 2026 costs determination ([2026] NZERA 656), an employee rejected an early $4,500 offer from Portland Horticulture (2021) Ltd and then lost. The Authority awarded the employer the $4,500 daily tariff plus a $1,000 uplift.
What happens if my employer does not pay?
You can enforce a signed record of settlement through the Authority. Section 151 allows the terms to be enforced by a compliance order under section 137, and money owed can also be recovered through the section 141 procedure, as if it were an Authority order.
Section 149(4) also makes a party who breaches the terms liable to a penalty imposed by the Authority. The maximum for each breach is $10,000 for an individual and $20,000 for a company. Penalties are paid to the Crown unless the Authority orders some or all of a penalty paid to you, and a penalty claim must be brought within 12 months of when you learned, or should have learned, of the breach.
The obligations bind both sides. In Silver Fern Farms Ltd v Norton [2017] NZERA Christchurch 54 a former employee was ordered to pay a $2,000 penalty for sending a disparaging email in breach of his settlement.
Before applying to the Authority, MBIE suggests contacting the mediator who signed the record, to see if they can help encourage the other party to comply.
What has changed recently?
The Employment Relations Amendment Act 2026 came into force on 21 February 2026 and lowers what some employees could win at the Authority, and so what their claims are worth in settlement.
Under new section 123B, if your conduct contributed to the situation and amounted to serious misconduct, the Authority cannot award any remedy. Under new section 123C, if an action of yours contributed (early decisions say it must be blameworthy), it cannot order reinstatement or any compensation under section 123(1)(c), including for hurt and humiliation. Lost wages remain, but section 124 allows them to be reduced by up to 100%.
Amended section 103A(5) says a dismissal or other action is not unjustified solely because of process defects that did not result in unfair treatment. The defects no longer need to be minor. New section 103A(3)(e) also requires the Authority to consider whether the employee obstructed the employer from investigating, raising its concerns or hearing the employee’s response.
Under section 113A, employees paid at or above the high-income threshold (currently $200,000) can no longer bring a personal grievance or other legal proceedings about their dismissal, unless their employment agreement says in writing, under section 67J, that section 113A does not apply. Pay for this test includes bonuses and other taxable payments over the previous year as well as base salary. They keep other grievances, such as discrimination, harassment and duress. Transitional rules protect some existing employees dismissed before 21 February 2027.
If your grievance concerns events before 21 February 2026, the older rules may still apply. The Act has no transitional rule for the remedy or process changes, and the Employment Court has held that section 123C did not affect proceedings already under way (Board of Trustees v LGY [2026] NZEmpC 46), so ask which rules apply to you.
Our post on the Employment Relations Amendment Act 2026 covers the changes in detail. If you earn near the threshold, read the $200k trap before you negotiate.
What should you do?
- Protect your deadline. Raise your personal grievance within 90 days of the action or of learning about it (12 months for sexual harassment), even while settlement talks continue, and put it in writing. Once it is raised, you have three years to start proceedings in the Authority.
- Ask for the offer in writing, with the draft record of settlement, and a reasonable time to consider it.
- Work out your realistic range: the likely compensation band, your lost wages after any new job, and the risk that any blameworthy contribution by you removes compensation entirely.
- Read every term, not only the payment. Check the tax treatment, the confidentiality exceptions, the reference text and how your departure will be described.
- Get advice before you go to mediation and before you sign anything, as a record agreed at a mediation meeting can be signed and final the same day. Our guide on how to prepare for a mediation meeting explains what to expect at mediation.
Frequently asked questions
Can my employer make my redundancy settlement confidential?
A confidentiality clause in a settlement needs your agreement, so your employer cannot impose one on you. You can negotiate exceptions, such as telling your partner, your accountant and your lawyer. Any confidentiality clause in your employment agreement still applies, and what is said at mediation is confidential, but these do not usually stop you saying you were made redundant.
Does a settlement mean my employer admits it was wrong?
No. Most records of settlement say the payment is made without any admission of liability, and employers often pay to save time, cost and management stress. The clause does not reduce what you receive.
Can I change my mind after signing a record of settlement?
You cannot once the mediator has signed it under section 149. Before then the mediator must check that you understand the effect and still want it signed, so raise any doubts with the mediator at that point. If you have already signed the agreement yourself, it may bind you as a contract depending on its wording, even if the mediator does not sign it, so get advice before you sign anything.
Can I settle with my employer without going to mediation?
Yes. You and your employer can agree terms yourselves and send the signed document to Employment Mediation Services for a mediator to sign. You can also settle by a private agreement that no mediator signs, but it does not have the protection of section 149. It is easier to challenge, and the section 149(4) penalty for breach does not apply. In 2024/25 MBIE reported completing 86% of the records of settlement it received within five days.
Should my lawyer’s fees come out of my settlement?
Not necessarily. Employers often agree to contribute to your legal costs as a separate item, on top of the payment to you, and you can ask for it to be paid directly to your lawyer. Whether a contribution is offered, and how much, depends on the strength of your claim and how much work your lawyer has had to do.
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Andy Bell is a Partner at Lane Neave, an employment lawyer who has practised in New Zealand for over 20 years, acting for employees and employers in settlement negotiations, MBIE mediation, the Employment Relations Authority and the Employment Court. He is a Recommended Lawyer in the Legal 500 Asia Pacific and a Recommended Employment Lawyer in Doyle’s Guide 2026.
Last updated: 24 October 2026. This article is general information about New Zealand law, not legal advice on your situation.
