I have been asked to sign a deed of release. What do I do?

A deed of release, also known as a deed of settlement, is used to formalise an agreement between two or more parties involved in a dispute. The purpose of such is to reach a mutual agreement on terms that make both parties happy. Read on to find out more about a deed of release, including the benefits of and provisions to include in a deed of release. 

What is a deed of release?

A deed of release is often used to resolve a dispute between an employer and employee or ex-employee. For example, if a previous employee was made redundant from their position in circumstances with which they disagree, a deed of release may be used for the dispute, such as ending a personal guarantee, terminating a loan or credit agreement or other commercial disputes.

A deed of release is a legal document that contains terms that are legally binding on the parties, meaning each party must clearly understand the terms of the agreement and how those terms affect them once they sign the agreement. Once signed, both parties commit to the terms of the deed. For example, if you need to settle a debt dispute by agreeing that one party will pay you a sum of money, signing a deed including these terms will limit you from claiming further sums of money, even if it is clear they are owed.

You may be asked to sign a deed of release.

What are the benefits?

A deed of release is a cheaper, faster and less stressful form of dispute resolution than court proceedings. Another advantage is that each person has the freedom to express their views, negotiate the terms, and reach an agreement that satisfies both parties (unlike the ‘win-lose’ scenario of court). With the right terms, the agreement can ‘release’ both you and the employee from most future dealings with each other, and may allow ex-employees to easily secure employment in the near-future. Therefore, a party is far less likely to pursue further claims against the other, and sometimes the terms of the deed include preventing the party from taking further legal action such as an unfair dismissal claim. Whatever the purpose, a deed of release will provide certainty and clarity of how a dispute should end.

What provisions should be included?

There may be many factors which lead to a dispute, and can be resolved via a binding deed. The content of the provisions within the deed must reflect the nature of the dispute, the employment agreement and what each party would like to get out of the settlement agreement.

Below are some of the most common provisions:

  • Payment: The employee is given a lump sum payment. In return, the employee gives up their right to sue the employer for certain actions and/or take them to the Fair Work Commission (FWC). Aside from the base amount, this payment should also include all accrued but unpaid entitlements owed to the employee like annual leave or any unpaid wages.
  • Avoid unfair dismissal claims: If the employee agrees to not submit a claim against an employer, the employee should understand exactly what legal rights they are giving up in exchange for the payment. Some agreements may prevent an employee from making any claims against an employer, while other agreements may only limit a specific type of claim. There are, however, certain claims that cannot be excluded e.g. workers compensation claims or claims for any other entitlements the employee is owed under law.
  • Statement of service: A document given to the departing employee which contains brief details about their employment with a company. This provision may be required as part of company policy or an extra benefit negotiated between the two parties. If requested, an employer may also provide a letter of reference, helping the employee find further employment elsewhere.
  • Confidential details: this documents the employee’s agreement to maintain the confidentiality of the employer’s confidential information and, often, the requirement to keep the terms of the settlement confidential. Keep in mind an employer cannot restrict an ex-employee from sharing or using any general knowledge or skills they gained during the course of their employment.
  • Mutual disparagement: the parties agree not to disparage each other or injure the other’s reputation.

A common feature of a deed of release is also a mutual release. It involves both parties agreeing to release each other from all future claims, demands, debts or other relevant actions. Alternatively, a deed may also state that only one party is released from certain obligations or liabilities, such as a clause restraining a party’s future trade or employment.

What does it mean to sign a deed of release?

It is essential that an employer and the employee sign or execute the deed correctly to ensure the deed is valid and enforceable. It is important that:

  • Someone who is not part of the deed witnesses your signature;
  • Companies execute the deed in accordance with rules of the company, with the correct number of directors and possibly the company secretary;
  • There are enough copies for each of the parties involved to sign;
  • One party signs all copies of the deed then passes that signed copy to the other party to sign. The deed may allow the parties to sign by ‘counterpart’. This means that parties can sign separate but identical copies of the same deed, which together form a single binding document. It is common for parties to scan and forward copies of the deed to other parties by email. The parties exchange these counterparts electronically with original signed copies sent later by post; and
  • You keep printed copies of the deed in a safe place.

Legal advice

If you have any questions about deeds of release or need assistance drafting or reviewing a deed of settlement, you should seek legal advice. Legal Kitz can assist with ensuring that your matter is as time and cost efficient as possible. We provide a FREE 30-minute consultation to set you in the right legal direction. Click here to book a FREE consultation with one of our highly experienced solicitors today or contact us by calling 1300 988 954.

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