31 Oct THINGS EMPLOYERS NEED TO BE MINDFUL OF WHEN ENTERING INTO A DEED OF RELEASE

Entering into a deed of release with an employee can be an effective means of settling and protecting yourself from employee claims, however, employers need to be aware of the limits of their use.

What is a deed of release and why enter into one?

A deed of release is an agreement entered into between an employer and an employee following resignation/termination of an employee’s employment, which settles current or future legal claims that an employee and/or employer may have against the other.  Most commonly, deeds are entered into to settle or prevent an employee from making an unfair dismissal or general protections claim.

The “release” from legal claims is ordinarily given in exchange for a settlement amount and/or a non-financial undertaking or statement, such as a statement of service which confirms the former employee was employed by the employer and gives brief details regarding the employment.

The benefits of entering into a deed, apart from the obvious protection it provides from liability, are that it can:

1.  provide certainty about termination, what an employee will receive and whether any restraint in their employment contract will continue or cease to apply;

2.  provide confidentiality, i.e. the employer and employee cannot discuss the terms of or discussions leading to settlement; and

3.  provide for non-disparagement, which prevents one or either party from making derogatory or critical statements about the other.

Six things employers need to be aware of

Whilst there are these benefits, there are certain things employers still need to be mindful of:

1.  an employer cannot force or influence an employee to enter into a deed of release, otherwise it may be set aside on the grounds of duress or under influence;

2.  A deed cannot restrict the employee from accessing their statutory rights, for example, their right to make a claim for workers’ compensation or superannuation, otherwise it may be set aside on the grounds of illegality;

3.  if an employer fails to enter into a deed with an employee and settles a claim informally, they risk facing related claims in the future which could have been prevented if a deed was signed;

4.  the terms of the deed must be very clear. They need to set out exactly what the matter is about, what the terms of the settlement are and what the employee is releasing the employer from.  They must also include any other relevant terms such as confidentiality and non-disparagement.  If the terms are clear, there can be no dispute down the track as to what was agreed;

5.  an employee may try to challenge the deed on the basis that they did not understand what the deed was or because they were under duress or unwell. If this happens, the Court will have to look at the evidence each side presents and decide whether the deed will stand or is invalid; and

6.  A deed may be set aside if it is brought about as a consequence of unlawful discrimination.

A recent case example

In the recent case of O’Hanlon v Williams & Ors [2017] FCCA 381, a college teacher alleged she was suffering from a psychological disability at the time she signed a deed with her former employer and that the deed should be rendered unlawful.  Specifically, she alleged that her former employer engaged in unlawful discrimination contrary to the Disability Discrimination Act 1992 (Cth) (“DDA”) when it required her to execute the Deed of Release because of her asserted psychological disabilities.

The Federal Circuit Court of Australia held that “there were no grounds upon which [she] could show that she was suffering from anxiety sufficient for it to cloud her decision-making process at the time”.        The Court also held that the teacher had entered into the deed to avoid termination of her employment and could not say she had been discriminated against in the making of and complying with that deed.

Conclusion

In summary, entering into a deed can be an effective way of mitigating your risk of claims, however it must be drafted properly and entered into on good terms.

If you have or may have a dispute with a current or past employee and think a deed of release may be beneficial, contact the team at HR Law for assistance.