If you have just terminated someone’s employment or are about to, there are many reasons why you would enter into a deed of release with this employee. Entering into a deed of release will provide you with certainty by clarifying your legal obligations. Furthermore, it will prevent the employee from commencing legal proceedings against you or your business. It also benefits the employee by allowing them to move on with their career. This article will answer six frequently asked questions on what a deed of release is and how to respond to a breach.
1. What is a Deed of Release?
A deed of release is a legally binding agreement between an employee and employer following the employee’s termination. It includes:
the conditions of the settlement;
details on the settlement amount that the employer has agreed to pay the employee; and
an agreement between the parties over what they can and cannot do as a result of entering into the deed.
A deed of release can be extremely beneficial to an employer as it usually prohibits former employees from commencing legal proceedings against them.
2. Do I Need to Include a Settlement Amount?
Parties can enter into a release as either an agreement or a deed.
An agreement is a contract, meaning that each party is required to provide something that benefits the other. This quid pro quo is referred to as consideration. Usually, the consideration for an agreement to release is that an employer provides a settlement amount. This will be in exchange for the employee’s promise to release the employer from any future obligations.
The benefit of entering into a deed instead of an agreement is that you don’t have to provide the employee with a settlement amount.
3. What Should a Deed of Release Include?
Release From All Employment Responsibilities
If included, you will not have any legal responsibility to any past, present or future claims arising from the employment.
For example, you will not be able to be sued for unfair dismissal.
Similarly, this will release the employee from any legal responsibility to any past, present or future claims arising from the employment.
For example, the employer cannot sue the former employee for negligence for actions arising from the employment.
It’s a good idea to set out a resolution for any issues that might arise out of the termination. The deed of release should include terms where the parties acknowledge:
that the former employee will receive payment for all entitlements owed and any outstanding bonus or commission payments; and
whether any restraint of trade found in the employee’s original contract continues or ceases to apply.
Businesses rarely want to disclose the terms of a deed of release. A confidentiality provision will prevent both the employer and employee from disclosing what was agreed in the deed of release to anyone, except their financial adviser or lawyer.
Details on How the Termination Will be Communicated to Other Employees
Especially if the events leading up to the termination are sensitive, employees will often want to know how their termination will be communicated to their colleagues. Including a term which sets this out will give an employee the certainty that you are handling their personal affairs with care.
You should require an employee to agree not to make any statements that disparage you or your business. This is particularly important in situations where there has been some unrest about an employee’s departure.
4. Will I Be Protected From Being Sued?
Entering into a deed of release gives employers extra protection against unfair dismissal claims and claims for loss resulting from termination. This is because the deed usually indicates that the employee resigned voluntarily.
However, if your employee is pressured into entering the agreement, the courts may not uphold the deed of release. Such pressure may be physical or financial pressure.