Understanding the Deed of Release

by John F. Morrissey Employment Lawyers on September 28, 2013

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(Aus Employment Law) An employment deed of release is a binding legal document that establishes agreement between an employee and an employer when employment has been terminated. The deed is final: after it has been signed, the former employee has no further claim on the employer.

WHAT ARE THE BENEFITS OF A DEED OF RELEASE?

A deed of release offers benefits to both employees and employers. The employee benefits by knowing exactly how much severance pay they will receive. If the employee goes to court, however, they cannot know in advance how much compensation they will receive or even if their claim will be successful.

The employer gets a guarantee that they will not face any future legal claims from the employee. It saves the employer time, money and the possibility of negative publicity.

It is wise for an employer not to proceed with negotiations at termination time – especially with an aggrieved employee – without making sure a deed of release is included in the considerations.

THE EFFECT OF THE DEED OF RELEASE ON THE CONTRACT OF EMPLOYMENT

Most employees believe that once their employment comes to an end, their obligations in respect of the employment contract cease.

This is not the position.

There are a number of terms and conditions of the employment contract that both the employer and the employee need to understand will be maintained after the employment comes to an end. These include security that the employee will not use any of the employer’s confidential information, intellectual property or proprietary information after the employee leaves.

These include:
• Not using confidential information gained in the course of empoyment
• restraint of trade clauses
• non-disparagement.

Non-Use of Confidential Information

Most employment contracts have a provision about non-use of confidential information. This information varies from workplace to workplace and may be specifically identified in the contract.

Alternatively, from the nature of the work that the employee does, they make become aware of matters that are confidential such as client lists, contact details of clients, marketing proposals and pricing lists. Those materials are vital to the employer’s business and cannot be used by the ex-employee or any other person after the employment contract ends. There is no time limit in relation to the use of confidential information.

Even though some employment contracts may not contain a confidential information clause, the provisions of the Corporations Act 2001 (Cth) s 163 has a provision that all contractors and employees cannot use a form of the employer’s property for their own purposes. This is a statutory obligation that all employees should be aware of.

It should also be noted that contractors have the same obligations not to use the employer’s hard property, such as motor vehicles or other materials, for their own purposes.

Restraint of Trade

In some employment contracts there may be a restraint of trade. That restraint of trade effectively stops an employee for a period going into competitive employment or working in the same industry.

There are usually other components to the restraint which include the following.
• Not approaching clients.
• Encouraging co-workers to leave.

Understanding your restraints of trade is particularly important.
Some restraints of trade may not be enforceable because they breach relevant legislation because they are too long and too wide.

The Courts are continuing reviewing the law in association with restraint of trade. The Court will generally take the view that an employer is able to protect their property. If an employee signs the restraint, the Court will usually hold that the employee is bound to it. It is up to the employee to show that the restraint breaches the Restraint of Trade Act because it is too long a period or too wide an area. If an employee cannot discharge that obligation the restraint is enforceable.

When you enter into a release, all employees should obtain legal advice in relation to the impact of the restraint. It is possible to negotiate within the deed of release a restricted restraint or be released from part of the restraints of trade.

It is important that the deed of release specifically contains restraints of trade.

Non-Disparagement

One of the concepts between employers and employees in resolving disputes is to agree that they will not say anything adverse, unfair or untrue about each other in the future. This is referred to as the concept of mutual non-disparagement. It is important that all deeds of release contain a mutual non-disparagement clause.

If the employee finds that other co-workers are disparaging you, the matter can be taken up with general management and the general manager needs to stop this inappropriate behaviour.
Unless there is a non-disparagement clause in the deed of release, there may be no restriction on the employee from making an adverse statement about an employee who has left.

EFFECTS ON A REFERENCE

Most employees who leave an organisation, for voluntary reasons or for reasons of termination, want to receive a reference or certificate of service. The reference or certificate of service needs to be attached to the deed and a clear line of communication needs to be made by a person at the workplace if an oral reference is sought.
If an oral reference is to be sought then an agreement needs to be reached as to what will be said in that oral reference.

EFFECTS ON PAYMENTS AND TAXES

Deeds of release occur for a number of matters, including the following.
• A competitive termination. That is, there may be an unfair dismissal claim and the employee has commenced proceedings at Fair Work Australia. In those circumstances, the deed of release is particularly important. Attached is the pro-forma that is used by Fair Work Australia in relation to settling unfair dismissal matters and it is a very good guide as to what is contained within a deed of release.
• Mutual agreement with the employee that the employee will leave. Usually what will happen in those circumstances is that the employee will be paid a period of notice and the amount paid will be an amount in the employment contract plus an additional sum.

If the employee receives more than they would receive either under the Fair Work Act, which are the notice periods specified in the Act as follows (Stephen to insert the notice periods); or the notice periods paid under the employment contract. If the employment contract provides that the employee receives more than four weeks’ notice, the employer may terminate the employee and give them four weeks’ pay in lieu of notice.

If the employer wants the employee to enter into a deed, there must be an additional payment as consideration for entering into the deed. Without that additional payment, the employee is not required to enter into the deed. Without that additional payment the deed may not be effective. No employee should sign a deed of release unless they receive more than what they are entitled to receive as a notice period under the Fair Work Act or under the employment contract.

Employees should negotiate the amount to enter into the deed with their solicitor.

Redundancy payment

Quite often an employer does require an employee to sign a deed of release in respect of redundancy or severance.

It is important that the employee understand the nature of entitlements in respect of notice and severance payments.

It is also important the employer does give to the employee a sum that is in addition to the entitlements under the Fair Work Act or the redundancy payments that are specified under the national employment standards, which are (Stephen to insert).

Some employers have redundancy policies and the employer is required to pay the greater of the national employment standards redundancy amounts or the policy.

Some employers require deeds of release in respect of redundancy matters so that they can confirm a number of issues including the following.
o That the employee acknowledges it is a genuine redundancy.
o The employee will not apply for other positions for another particular employer, usually for a period of 12 months.

Taxation on Payments

All employees should obtain advice from their accountants about the appropriate taxation arrangements.

The Australian Taxation Office has specific requirements in relation to the taxation on redundancy and severance payments. As of the time of preparing this document in June 2013, the tax free part for bona fide redundancy for 2012-2013 is $8,806 and $4,404 for a complete year of service.

The amounts to be paid to employees include amounts paid in lieu of notice, any redundancy payment, any ex gratia payment to enter into the deed, any annual leave and/or any long service leave. These should be specified in the annexure and the amount of taxation identified. The methods of calculating all those amounts should also be specified in an annexure, which is an attachment to the deed.

The employee tends not to get paid immediately when the deed is signed. Usually there is a provision that the employee be paid within 7 to 28 days after the deed has been signed. This should not be of concern to the employee as the deed is a legally binding document where the employer is required to make payments.

If the employer does not make a payment the employee has a right to sue under the deed. That may not be of great comfort to employees but it is important to understand that most employers will not pay the amount specified in the deed on exchange of the deed. The amount is usually paid in a short time thereafter.

If there are any concerns that the employer does not have the ability to pay the amount specified it would be appropriate that on exchange of the deed the amount be paid by cheque into the employee’s bank account. Usually the amounts are paid into the employee’s bank account.

Note also you can find LabourBlawg’s new employment solicitor directory here (UK only).

John F. Morrissey Employment Lawyers
John Morrissey has been a practising Sydney solicitor for 30 years, and for the past 20 a sole practitioner and the principal at John F. Morrissey Employment Lawyers in Sydney, Potts Point. The main focus of John’s practice is employment law, advising small to medium-sized firms and their employees of their rights and obligation. For 15 years, John lectured at UTS, especially to graduate human resources managers in employment law subjects. John provides seminars to Not For Profit groups and professional associations such as BASIL (Brothers and Sisters in Law) and the Allied Health Professionals. Upcoming seminars are listed on our - See more at: http://www.johnfmorrissey.com.au/
John F. Morrissey Employment Lawyers
John F. Morrissey Employment Lawyers
John F. Morrissey Employment Lawyers

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