A recent decision by the Full Bench of the Fair Work Commission (Full Bench) reinforces that an employer should obtain a deed of release from an employee when any ex gratia payments (payments made in goodwill and without legal obligation) are made to an employee whose employment is terminated.
In Allied Colour & Additives Pty Limited trading as Allied Colour & Additives v Mr Richard Birch, the Full Bench found that an ex gratia payment made by an employer to an employee on the termination of their employment does not necessarily have to be deducted or be taken into account when calculating compensation awarded in any subsequent unfair dismissal claim.
The facts and decision
In this case, the employer lost confidence in the employee’s ability to properly perform his work and decided to dismiss him, after which the employee was paid an ex gratia amount of $4,579, provided with a reference, and allowed to resign, in recognition of his 20 years’ service.
The Fair Work Commission (FWC) Commissioner, at first instance, found that the employee was constructively dismissed and that the dismissal was unfair, after his employer was unable to establish that the employee was responsible for his alleged work errors. The Commissioner awarded the employee compensation of $11,442, calculated on the basis of 10 weeks’ projected lost income, plus employer superannuation contributions, and made no deduction from the compensation awarded in respect of the $4,549 ex gratia payment already made by the employer.
Importantly, the employer did not obtain a deed of release from the employee, which would have prevented him from bringing an unfair dismissal or any other relevant claims, before making the ex gratia payment, allowing him to resign and agreeing to provide him with a reference.
On appeal, the Full Bench found that the Commissioner had made no appellable error by not deducting the ex gratia payment from the compensation awarded. As a result the employer was required to pay compensation of $10,298 in addition to the ex gratia payment already made.
Lessons to be learned by employers
An employer who makes a payment to an employee whose employment has been terminated, which is in excess of the employee’s legal entitlements (or agrees to do other things for the benefit of the employee, such as provide a reference or to allow the employee to resign) should always ensure that any such payment is offered conditional upon the employee signing a deed of release to prevent the employee from bringing any further claims against the employer, including an unfair dismissal claim.
Employers often believe that it is not worth the expense or time involved in having an employee sign a deed of release, particularly when the ex-gratia payment is not particularly high.
However, the failure to obtain a deed of release will mean that an employer remains exposed to the risk of legal proceedings, which may result in the payment of further compensation, even after the employer has made ex-gratia payments or agreed to do certain things for the benefit of the employee with the intention to avoid any further action by the employee.
Employers should obtain legal advice about the contents of the deed of release which, in addition to containing a release covering any claims the employee may have against their employer, can also include clauses covering confidentially, non-disparagement and other issues of importance to the employer, such as the protection of confidential information and their client base.
It is also important to remember that at no time should an employee be coerced or pressured into signing such a deed of release, and that the employee should be given the opportunity to obtain legal advice about the contents of a deed if they wish.
Failure to obtain a deed of release may result in a situation where rather than “one good deed deserving another”,the lack of one good deed of release exposes an employer to further unnecessary expense.