Should You Offer A Deed Of Release During A Redundancy?

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Summary

A deed of release is a legally binding agreement that settles or releases specified employment-related claims in exchange for benefits above an employee’s minimum statutory entitlements.
It cannot be used to remove an employer’s obligation to pay minimum statutory or contractual entitlements, and it may not be necessary in every redundancy.
Employers should assess the level of legal risk, avoid undue pressure on employees, and consider legal advice before offering one.
This guide explains deeds of release during redundancy for Australian business owners and employers.
It is provided by LegalVision, a commercial law firm that specialises in advising clients on employment and redundancy matters.

Tips for Businesses

Assess each redundancy individually before offering a deed of release – it isn’t always necessary and can sometimes prompt disputes. Ensure statutory entitlements are paid regardless of signing, give employees adequate time to review the deed, and encourage independent legal advice before finalising terms.

A redundancy can expose your business to legal risk, particularly where an employee disputes whether the redundancy was genuine. While employers cannot require employees to waive their minimum statutory entitlements, they may choose to offer additional benefits in exchange for greater certainty. One way of achieving this is through a deed of release. A well-drafted deed of release can help employers reduce the risk of future disputes by documenting the agreed terms of an employee’s departure. This article explains what a deed of release is, when employers should consider offering one during a redundancy, and the key issues to keep in mind.

What is a Deed of Release?

A deed of release is a legally binding agreement between an employer and an employee that settles or releases specified legal claims arising out of the employment relationship.

During a redundancy, an employer may offer an employee benefits beyond their minimum legal entitlements in exchange for the employee agreeing to release certain employment-related claims. In doing so, both parties gain better certainty regarding the employee’s departure and reduce the likelihood of future disputes.

Why Do Employers Use a Deed of Release?

A deed of release is a practical risk management tool. It allows employers to resolve potential issues arising from the termination of employment while providing the employee with additional benefits they would not otherwise be entitled to receive.

Depending on the circumstances, a deed of release may help employers:

remove the risk of employment-related claims;
achieve greater certainty regarding the employee’s departure;
preserve the business’ reputation;
protect confidential business information; and
avoid the time and cost associated with litigation.

When Should You Offer a Deed of Release?

A deed of release is not necessary in every redundancy. If the redundancy is straightforward, the employee accepts the termination, and there is little risk of a dispute, preparing a deed may not be commercially worthwhile.

However, employers should also consider that offering a deed of release can sometimes have unintended consequences. For example, presenting a deed to an employee who had not previously raised concerns may encourage them to seek legal advice or question the redundancy where they otherwise may not have done so. For this reason, employers should weigh the legal protection offered by the deed against the practical circumstances of each redundancy.

A deed of release may be appropriate where:

the employee disputes whether the redundancy is genuine;
the employer is offering an enhanced redundancy package; or
there is a genuine risk the employee may pursue legal action after their employment ends.

In these circumstances, a deed of release may help resolve issues before they develop into formal legal proceedings.

Can a Deed of Release Remove an Employer’s Legal Obligations?

No. A deed of release cannot be used to avoid an employer’s obligation to pay an employee’s minimum statutory or contractual entitlements.

For example, employers must still pay any amounts owing to the employee, including:

outstanding wages up to and including the termination date;
accrued but unused annual leave;
long service leave (where applicable);
payment in lieu of notice (where required); and
statutory redundancy pay, where the employee is entitled to receive it.

These entitlements must be paid regardless of whether the employee signs a deed of release. Instead, a deed relates to additional benefits offered above the employee’s minimum legal entitlements.

What Additional Benefits Can Employers Offer?

Employers commonly provide additional consideration in exchange for an employee signing a deed of release.

Depending on the circumstances, this may include:

an ex-gratia payment;
reimbursement of reasonable legal fees incurred in obtaining advice on the deed;
a waiver of post-employment restraint obligations; or
an agreed statement of service.

The additional benefits should reflect the commercial value of obtaining greater certainty and reducing the risk of future legal claims.

What Risks Should Employers Be Aware Of?

Employers should avoid placing undue pressure on an employee to sign it.

For example, employers should avoid:

giving employees insufficient time to consider the agreement;
suggesting they must sign immediately;
making payment of statutory entitlements conditional upon signing the deed; or
making misleading statements about the employee’s legal rights.

Employers should also remember that a deed of release cannot release every type of legal claim. For example, rights relating to workers’ compensation and historical superannuation claims continue despite the deed.

Is a Deed of Release Always Appropriate?

Not necessarily. Whether a deed of release is appropriate will depend on the level of legal risk, the employee’s circumstances and the commercial objectives of the business. In some cases, the employer may be satisfied that the redundancy process presents a low risk of future claims and that a deed of release is unnecessary. Where an employee has accepted the redundancy without dispute, introducing a deed of release may prompt them to seek legal advice or raise concerns that otherwise would not have arisen.

Employers should therefore weigh the benefits of obtaining greater certainty against the circumstances of the particular redundancy before deciding whether to offer a deed of release.

Before deciding whether to offer a deed of release, employers should consider:

the likelihood of legal claims;
the value of any enhanced redundancy payment;
the employee’s role and length of service;
the complexity of the redundancy process; and
whether the benefits of obtaining a release outweigh the time and cost involved.

Obtaining legal advice before offering a deed of release can help employers determine whether it is appropriate and ensure the agreement adequately protects the business’ interests.

Key Takeaways

A deed of release can be an effective risk management tool during a redundancy, particularly where an employer is offering benefits beyond an employee’s minimum legal entitlements or wishes to reduce the risk of future legal claims. However, employers should assess whether a deed is appropriate in the circumstances, as it may not be necessary in every redundancy and can sometimes encourage disputes where none previously existed.

A deed cannot be used to avoid statutory obligations, and employers should ensure employees have a reasonable opportunity to consider the agreement and obtain independent legal advice before signing.

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Frequently Asked Questions

Is a deed of release mandatory during a redundancy?

No. Employers are not legally required to use a deed of release when making an employee redundant. Whether one is appropriate depends on the circumstances, including the level of legal risk and whether the employer is offering benefits beyond the employee’s minimum entitlements.

What claims does a deed of release usually cover?

A deed of release typically covers employment-related claims such as unfair dismissal, general protections claims, breach of contract, and other workplace-related disputes arising out of the employment relationship.

Does an employee have to accept a deed of release?

No. An employee can refuse to sign a deed of release and instead rely on their existing legal entitlements, though they will not receive any additional payment offered under the deed.

Does a deed of release need to be in writing?

Yes. A deed must be in writing and signed, witnessed and dated correctly to be legally enforceable, unlike a simple contract which can sometimes be verbal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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