Your employer has just given you a deed of release. You may have been given it as part of a voluntary redundancy or you may have been given it to settle a dispute you had with your employer. You are looking to move on to the next step in your career, but you should make sure that the deed of release is fair and won’t interfere with your future before signing it.
What red flags do you need to look out for before you sign it?
1. Payment
More often than not, a deed of release gives a departing employee some form of lump sum payment. In order to figure out whether you are getting a good deal, it is important that you get legal advice to see whether your employer owes you any entitlements and whether you could make any claims against your employer.
One entitlement that is often forgotten is a bonus payment. If there is a clause in your contract saying that you may be entitled to a bonus payment, the lump sum payment made in the deed of release should be high enough to compensate you for the fact that you lost a chance to earn that bonus.
It is also important to remember that, in most circumstances, part of the lump sum payment will be deducted and remitted to the ATO for taxation purposes so it is important to ensure that any payments are to be taxed appropriately and in the most efficient manner.
The bottom line is that you want to make sure that the payment you are receiving is more than what your minimum entitlements would be if you weren’t to sign the deed of release. In other words, how much are you receiving in return for giving up your rights for a potential claim against your employer?
2. Release from Liability
Deeds of release always contain a clause which will prevent you from making a claim against your employer in the future. It is important to understand exactly how broad that prohibition on future claims is so that you know exactly what it is that you are giving up. Some deeds of release will impose a blanket ban on all claims against your employer, while others will be limited to a specific dispute. On occasion, you may be able to negotiate a release from your employer where you are also released from any potential claims your employer may have against you. Whilst employers are reticent to release employees from claims, they may be prepared to give you a partial release, for example, release you from any restraint of trade clauses in your contract or some form of allegation that has been made against you.
3. Statement of Service
You should always look at the deed of release to try to figure out how the termination of your employment will be classified and whether you will be given a ‘statement of service’ or a ‘reference’. Most employers are happy to give you a positive or neutral reference and say that you have ‘resigned’ for personal reasons as a way of settling a dispute. This can be important if you want to continue working in the same industry. If you have been made redundant, it is also important to have this acknowledged in the statement of service, particularly for tax purposes.
4. Confidential Information
More often than not, deeds of release will prevent you from disclosing or using any of the employer’s confidential information. If you are not sure exactly which information is confidential, it is important to ask your employer what they consider to be confidential in order to make sure that you do not inadvertently breach the clause.
One thing which employers cannot say is confidential is your ‘know-how’, or the ‘general skill, knowledge and experience’ that you gain during your employment. If the confidential information clause in your deed of release includes ‘know-how’, it may be a good idea to get some legal advice to see whether it can be removed.
5. Restraints of Trade and Post-Employment Obligations
Some deeds of release will create restraints of trade. These restraints include:
- ‘Non-compete’ clauses, which prevent you from setting up or working for a competitor who operates within a defined geographical area for a particular period of time.
- ‘Non-solicitation’ clauses, which prevent you from soliciting the business of any of the employer’s clients, or from enticing other employees to join a new or different business.
These clauses can make it difficult for you to take the next step in your career. It is important to get legal advice on the meaning and effect of the clause and whether it will be enforceable. If your lawyer thinks that the clause is not enforceable, he or she will be able to write to the employer and demand that it be narrowed or removed. This will help to give you some peace of mind as you move on to your next endeavour.
It is also important to know what obligations in your employment contract (if any) will continue to be in effect under the deed of release and after your employment has come to an end. These obligations generally include restraint of trade, confidentiality and intellectual property clauses in your employment contract.
6. Non-disparagement
Non-disparagement clauses restrict what you can say about your employer. Generally, they will stop you from saying anything that would damage the reputation of the employer in its industry and the community generally.
It is a good idea to ensure that the non-disparagement clause is ‘mutual’. This means that your employer should also agree to not disparage you. This can be important to protect your own reputation.
It’s recommended you speak to a solicitor before signing a deed of release
If you are an employee concerned about a restraint of trade clause in your employment contract, please call us on (02) 9199 8597 or email us.
More information
Join our team as we answer your FAQs about Deeds of Release. To access the transcript, click here.
The information contained in this post is current at the date of editing – 18 October 2024.
