Sometimes the end of employment can be a little ugly for both the employer and employee.  We recently had a client situation where we recommended to include a Deed of Release to finalise matters relating to the employment and to protect the business against future claims.  Today we wanted to share the situation as well as unpack what a Deed of Release does and when they might be a useful tool to use in your HR & Workplace Relations affairs.

Typically employee termination entitlements are covered by the Fair Work Act, National Employment Standards, Modern Awards and Employment Contracts with the exception of Long Service Leave which is covered by State based legislation.  These instruments are typically sufficient to support a fair an equitable conclusion of employment for both the employer and the employee.  However, what happens when there is a dispute and one or both parties feel aggrieved?

We recently had a situation such as this with a client where the employee was fairly terminated and felt that they were entitled to an additional weeks severance pay than they were entitled to under the relevant legislation.  The relationship between the employer and the former employee soured as a result of this difference of views and the employee was threatening to make a claim against the employer to recover the 1 weeks pay that they incorrectly believed that they were entitled.

Our client ultimately made a commercial decision to pay the employee the extra week’s pay as they did not want to have to defend the impending claim even after we reassured them that they would be successful if they chose to defend the claim.  Ultimately in their view it was cheaper for them to pay the one weeks salary then spend their time plus the cost of further advice in defending the claim.

But once they paid the additional weeks wage, how could they ensure that the former employee would not go and lodge the claim anyway?  This is where a deed of release comes in which in effect is an enduring contract between the employee and their former employer for full and final settlement of all matters relating to their employment and the associated terms.  In our scenario the simplified way of looking at it is a document that says we, the employer will pay you one weeks wage and you, the employee cannot lodge any future claims against us.

It is important to note that Deeds of Release can be found invalid if they are less than the entitlements afforded to an employee under the legislation we have outlined earlier.  For example if the employee is owed 4 weeks notice, a valid Deed of Release cannot agree to 2 weeks notice.  Additionally, Deeds of Release regardless of the included terms cannot release the employer from future claims relating to Workers Compensation and Superannuation.

So when should you consider using a Deed of Release?  In our view any situation where you have agreed to pay an employee on termination an amount that is more than their legislative entitlements should be subject to a Deed of Release.  We think about it this way, you the employer are giving something extra to the employee and should be asking for something in return, in this case release from future claims such as Unfair Dismissal and Adverse Action.

If your business is facing a difficult termination situation, or any other HR & Workplace Relations situation, then why not reach out to On Demand HR by visiting ondemandhr.com.au.