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 t/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 FWC 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 FWC 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.
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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Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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