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What is Done, is Not Always Done
Let’s start by putting things into context. When employers and employees resolve a dispute using a Deed of Release or Settlement Agreement, they’re usually doing it because they want to move forward, and they have little-to-no intention of finding themselves back in the middle of a dispute anytime soon.
So, when an employer does a deal and signs a document with an employee that contains a general or comprehensive release of all claims, the practical reality is that hostilities usually end or are avoided, and both the employer and employee move on in different directions.
But, when the settlement’s done, is it always done? Spoiler alert – sometimes it’s not.
When a Deed of Release or Settlement Agreement is signed between an employer and employee, it’s common for the Deed or Agreement to set out a number of things. Firstly, it will generally talk about when the employment started, and when it ended. Sometimes it will refer to where the terms and conditions of employment were set out, and occasionally it deals with other aspects of the employee’s remuneration, including equity and other incentive arrangements. Often (preferably), the Deed or Agreement will also talk to specific disputes and the circumstances which gave rise to the Deed or Agreement coming into place.
Irrespective of the circumstances, it’s common for the release to be broad and expressed to be all encompassing. It often says the employee is releasing the employer from all and every claim relating to or arising out of the employment, and all of the matters set out within the recitals. While it would be common for most employers to assume there’s now no avenue for a future claim to be made against them, in reality how effective is the release you’ve just entered?
There are a few things to keep in mind.
- Most employers accept as uncontroversial the exclusion of workers compensation claims, and more recently statutory superannuation claims. This is accepted because it’s in most circumstances it’s not possible to “contract out” of these statutory rights and obligations.
- Many employers understand that although releases can be effective at putting to bed known disputes and things that were expressed to be in the parties contemplation at the time, they’re not very effective (and are likely to be ineffective) at releasing the employer for future, unknown events. That’s why we often recommend a two-part process when entering a Deed or Agreement with an employee that will be remaining in employment for a period of time (i.e. an initial document which is signed now and sets out the full terms of the deal, and then a Deed Poll which is signed once the employment ultimately ends).
- Releases are unlikely to be effective at stopping a future claim for a past statutory entitlement, unless that entitlement was the subject of the dispute, and the Deed or Agreement is focused on the resolution of that dispute. Examples can include claims about the incorrect payment of leave entitlements or claims about statutory underpayments.
- It’s common for employers to use Deeds when documenting settlements (rather than contracts). While the use of Deeds largely dispenses with the legal requirement for there to be valuable consideration going to the employee, the use of a Deed carries with it a tighter legal obligation around execution – that is, a Deed will normally need to be executed by the employer in accordance with the requirements for executing Deeds set out in the company’s constitution. If the Deed doesn’t meet the stricter legal requirements for execution, the enforceability of the Deed can be put at risk.
Understandably, employers who provide benefits on termination that exceed the employee’s minimum entitlements, or who have agreed to make payments in settlement of a dispute, will want certainty that all reasonable avenues for future claims are sealed-off. It’s therefore important that when negotiating and finalising the deal, careful consideration is given to what the deal is likely to actually resolve, and what it may not.
Chris Oliver, Director
Other Relevant Resources
9 March 2018