If you have just terminated someone’s employment or are about to, there are many reasons why you would enter into a Deed of Release with this employee. Entering into a Deed of Release will provide you as an employer with certainty by clarifying obligations and preventing the employee from commencing proceedings against you or your business. It also benefits the employee by allowing them to move on with their career. Below, we answer six frequently asked questions and set out what a Deed of Release should include, and how to respond to a breach.
1. What is a Deed of Release?
A Deed of Release is a legally binding agreement between an employee and employer following termination. It includes the conditions of settlement; usually, a settlement amount that an employer agrees to pay to the employee, as well as an agreement between the parties over what they can and cannot do as a result of entering into the deed. This can be extremely beneficial to an employer as it usually prohibits former employees from commencing legal proceedings against them.
2. Do I Need to Include a Settlement Amount?
Parties can enter into a release as either an agreement or a deed. An agreement is a contract, which means that parties are required to provide consideration, or an exchange of benefits for a court to consider it properly formed, and therefore binding. Usually, the consideration for an agreement to release is that an employer provides a settlement amount in exchange for the employee’s promise to release the employer from any future obligations. The benefit of entering into a deed as opposed to an agreement is that you aren’t required to provide consideration to your employee as a matter of law for the deed to be binding, meaning no settlement amount is required.
There are a few requirements you need to consider before executing a deed. A deed must be signed, sealed, delivered and witnessed. If a company is signing the Deed of Release, then it must be signed per the requirements set out in the Corporations Act – this means that two directors (or a director and company secretary) will be required to sign the release.
3. What Should a Deed of Release Include?
Release from all claims in relation to employment
This releases you as an employer from liability relating to any past, present or future claims arising from the employment. Such claims might include unfair dismissal.
Similarly, this will release the employee from any liability relating to any past, present or future claims arising from the employment. For example, the employer cannot sue the former employee for negligence for actions arising from the employment.
It’s a good idea to set out a resolution for any issues that might arise out of the termination. For example, terms should be included in which the parties acknowledge:
- That the former employee will receive payment for all entitlements owed to them including annual leave and long service entitlements, and any outstanding bonus or commission payments; and
- Whether any restraint of trade found in the employee’s original contract continues or ceases to apply.
Unsurprisingly, businesses rarely want to disclose the terms of a Deed of Release. A confidentiality provision will prevent both the employer and employee from disclosing what was agreed in the Deed of Release to anyone, except their financial adviser or lawyer or where otherwise permitted by law.
Terms detailing how the termination will be communicated to other employees in the business
Especially if the events leading up to the termination are sensitive or if they involved disagreement, employees will often want to know how their termination will be communicated to their colleagues. Including a term which sets this out will give an employee the certainty that you are handling their personal affairs with care.
Particularly important in situations where there has been some unrest about the departure of an employee, you should require an employee to agree not to make any statements which disparage either your business or yourself personally.
4. Will I Be Protected From Unfair Dismissal Claims and/or Claims for Loss Resulting From Termination?
Entering into a Deed of Release gives employers extra protection against unfair dismissal claims, as well as claims for loss resulting from termination, as the deed itself usually indicates that the employee resigned voluntarily. However, employers should still be mindful of a few things. It’s possible that courts may set aside a Deed of Release if an employee argues that an employer pressured him or her into entering the agreement. Such pressure may be physical or financial pressure, for example threatening to withhold certain entitlements if the employee refuses to sign. It’s then important to give the employee enough time to seek independent legal advice so they can fully understand what they are signing.
5. What Should I Do If an Employee Breaches the Terms of a Deed of Release?
There are a number of ways an employee may breach the terms of a Deed of Release. If the purpose of the deed is to prevent legal proceedings from being commenced against an employer and an employee does so, then an employer will be able to raise the Deed of Release as a bar to the commencement of proceedings.
If an employee breaches a confidentiality clause or uses confidential information to damage your business’ goodwill, you may be able to obtain court orders to prevent further misuse/disclosure of information, or get compensation for your losses relating to the misuse of information. You may also be able to obtain an order for an employee to return any confidential information in his or her possession.
You may have included a restraint of trade clause in your former employee’s contract (which prevents an employee from working for a competitor for a specified period) and sought to clarify this clause in your Deed of Release. If an employee breaches a restraint of trade clause, there are a few remedies available to you. You may apply for injunctive relief preventing the former employee from continuing to breach the clause. It’s also possible to receive compensation in the form of damages for losses resulting from the breach and in some instances to receive an account of any profits which the employee gained as a result of their breach. A non-compete clause is difficult, though not impossible, to enforce so it is critical that you have a lawyer carefully draft the clause.
6. What Should I do if an Employee Has Already Commenced Proceedings Before Entering Into a Deed of Release?
You may be seeking to enter into a Deed of Release to discontinue proceedings an employee has already commenced. If this is the case, it’s important to structure the release so that an employee can only acquire any benefits after he or she has complied with their obligation to discontinue the proceedings. This can simplify enforcement. Furthermore, if the employee is failing to satisfy additional obligations, such as handing back company property or complying with a restraint of trade clause, you may need to enforce obligations by obtaining court orders. This can be quite costly.
Often employers view entering into a Deed of Release post-employment as costly and unnecessary. However, having such an agreement in place offers employers significant protection against employees commencing legal proceedings against them and can reduce stress and expenses down the track. It also eliminates any uncertainty surrounding the termination for both the employer and employee. The content of a Deed of Release will differ according to the timing and circumstances of your situation and so it is important to get professional advice to ensure you protect your business adequately. Questions? Get in touch with our employment lawyers on 1300 544 755.