We are considering making an ex-gratia payment to an employee on termination. We would like to make this payment as part of a deed of release or a settlement agreement. What is the difference between a deed of release and a settlement agreement? Do they need to include the words deed of release?
When an employer and employee seek to end employment by mutual agreement, the parties may consider using a deed of release or a settlement agreement. These documents are intended to be used to settle current and future claims that the parties may have against each other in return for that which is provided under the document (such as money).
A deed is a legal instrument in writing. There are specific procedures that must be executed for a deed to be binding. Section 127 of the Corporations Act allows companies to execute documents, including deeds, without a common seal, if signed by 2 directors or a director and company secretary. A company’s constitution may also set out other ways in which a company may execute documents including deeds.
A settlement agreement is a contract. Under s 126 of the Corporations Act, a contract may be made by an agent authorised by the company on behalf of the company. The elements required to make an enforceable contract must be present, including offer and acceptance, consideration and an intention to create legal relations.
There are a number of factors that may make a deed of release or a settlement agreement more suitable in the circumstances. For example, a deed of release may be preferable when it is not clear if any consideration offered would be suitable.
Moreover, an agreement may be easier to create if the company is able to trust an agent to enter into an appropriate agreement. By comparison, a deed must be executed in accordance with the requirements of the Corporations Act or under the requirements of the company’s constitution.
Some matters can and other matters cannot be contracted out of by a deed of release or a settlement agreement.
It is of critical importance to seek legal advice about whether the matter which an employer seeks to mitigate against can be legally covered by a document on termination by mutual agreement. Further, it is vital that a deed of release or a settlement agreement is appropriately drafted as relevant to the circumstances so that it can be enforceable and therefore used to defend the employer.
Ai Group does not provide template deeds of release or settlement agreements and does not provide general drafting advice because we believe all deeds of release and settlement agreements should be tailored to the circumstances at hand.
To seek advice about whether a deed of release or a settlement agreement may be suitable, please call the Workplace Advice Line on 1300 55 66 77.
Our Workplace Relations Consultants can also assist in instances where advice about the drafting of a deed of release or settlement agreement is desired or where strategic advice about the use of these documents is needed
Clinton is the Publications Manager at Ai Group. He is responsible for a number of key services including Annotated Modern Awards, Workplace Relations Handbooks and the management of Ai Group’s HR and Health & Safety Resource Centres. Clinton has a Masters in Employment Relations and previously held advisory roles with the Workplace Authority and Fair Work Ombudsman.
