Should Employers Offer a Deed of Release to Employees Who Have Been Made Redundant?

As an employer, it is important to understand what amounts to redundancy and how to undertake the redundancy process. You may even consider offering employees a deed of release. At a high level, it is an agreement between the parties for the employer to provide a benefit to the employee in exchange for a release from any future claims (to the greatest extent applicable under the law). This article explains what redundancy is and what payments the employee is entitled to under the Fair Work Act 2009 (Cth). It also considers whether to offer a deed of release to an employee who is made redundant.

What Is a Redundancy?

A role is redundant if it is no longer required to be performed by anyone. This means that the employer will not rehire into the role, at least in the foreseeable future. As an employer, it is also important that you can explain the business reasons behind making a role redundant. For example, a redundancy could be caused by a restructure where the business could operate effectively with less staff, or by a downturn in the business where the employer can no longer afford a role.

By contrast, an employee is not made redundant if their employment is terminated for poor performance or for misconduct.

What Payments Is the Employee Entitled To?

Where you terminate an employee’s employment on account of redundancy, you must make the following payments to comply with the Fair Work Act:

• payment for the employee’s outstanding wages;
• payment in lieu of the notice period, where the notice period is not worked out. The applicable notice period will generally be set out in the employment agreement, but otherwise must be in accordance with legislation and any relevant industrial instrument;
• redundancy payment, where relevant;
• payment for any accrued but untaken annual leave; and
• any other amounts owed on termination, such as long service leave payment.

The redundancy payment will vary depending on the employee’s period of continuous service in accordance with the following table. Importantly, we note that:

• employees with less than 12 months of continuous service are not entitled to a redundancy payment; and
• small business employers, broadly defined as employers with fewer than 15 employees (excluding true casual employees), are not required to make a redundancy payment.

What Is a Deed of Release?

In the context of termination of employment, a deed of release is generally a document where an employee agrees to release the employer from any future claims in relation to their:

• employment; 
• the employment agreement; and 
• termination. 

In return, the employer provides a benefit to the employee such as:

• a payment; 
• a reference letter or statement of service; or 
• treating the termination as a resignation. 

The benefit to which the parties agree can vary but in any case. However, the employee will be entitled to their minimum entitlements at law regardless. This is inclusive of the minimum payments under the Fair Work Act (outlined above).

A deed of release also typically includes terms prohibiting the parties from disclosing the existence of the deed and the relevant background. Likewise, it includes an obligation on the parties not to disparage the other party.

Should Employers Offer a Deed of Release to Employees?

In short, there is no need or obligation to offer a deed of release to an employee. Similarly, an employee has no obligation to accept a deed of release. 

Where the employment ends on account of redundancy, an employer may offer a deed of release to an employee if:

• the employer would like to provide an extra benefit to the employee as a gesture of goodwill and as a matter of company policy. This requires the benefit to be provided in return for a deed; or
• the employer has concerns the employee may make a claim, such as an unfair dismissal claim or a general protections claim, in relation to their employment, and the employer wants to try to resolve this preemptively.

Moreover, where the employer does not elect to provide an additional benefit (in excess of the amounts outlined above, including a redundancy payment), there is a question as to the purpose (and enforceability) of providing the employee with a deed. Providing the employee with a deed can prompt the employee to investigate whether they have any possible claims which they may not have previously considered.

Further, if you have concerns regarding a potential claim, it can be useful to offer a deed of release to an employee. Likewise, providing a benefit to the employee can help to avoid any claims and the associated time and money spent responding to them. This can provide an early opportunity to avoid proceedings altogether. Of course, this is conditional on the employee agreeing to enter into the deed, which they may not be willing to do.

Key Takeaways

There is no obligation for an employer to offer a deed of release, or for an employee to accept it. As an employer, you may elect to do so in circumstances where you would like to provide a benefit in excess of the minimum entitlements at law or where you are concerned there is a practical or legal risk of a claim being made against you. In these circumstances, you should ensure the document releases you from any relevant claims and includes other standard terms such as mutual confidentiality and non-disparagement.

For more information on how to undertake a redundancy or assistance with preparing a deed of release, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

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