When employment disputes are resolved, it’s common for employers to enter into Deeds which record the terms of the settlement as well as containing other terms such as confidentiality and non-disparagement. And perhaps the most important clause in a Deed is the release clause, whereby the employee releases the employer from any claims they may have, thereby waiving their right to bring other types of claims and giving the business certainty that they are resolving all matters in dispute between the parties.
However, a recent decision of the Supreme Court of Victoria provides a cautionary tale for businesses and highlights the importance of ensuring these documents are properly drafted.
Background to the Decision
The decision involved an employee who brought an unfair dismissal claim after he was dismissed in 2015 for verbally abusing a hotelier during a work related trip. The proceedings then settled at a Fair Work Commission conciliation, with the employer agreeing to pay 26 weeks’ pay to resolve the claim. The parties then executed a Deed of Settlement recording the terms of settlement.
Importantly, the Deed contained a clause which required the employee to release the employer from “all claims … which he has or but for this Deed of Settlement would have had, arising out of or incidental to his employment, proceedings and the termination.” [emphasis added]
Some five years later, the former employee then commenced a common law negligence claim against the business, in which he claimed that the business had breached its duty of care to him during the show cause process, thereby causing him to suffer a significant psychiatric injury.
In response, the business relied on the Deed of Settlement and argued that the Deed precluded the employee from bringing any further claim relating to his employment or the circumstances surrounding the termination of his employment.
The Supreme Court Decision
The Court initially observed that the Deed appeared to bar the claimant from pursuing the claim, given that his negligence claim could broadly be said to be “arising out of or incidental to his employment, proceedings and the termination”.
However, the Court then referred to High Court authority which provides that release clauses must be limited to those things which were specifically “in the contemplation of the parties at the time when the release was given”.
The Court concluded that the Deed could not be construed as releasing the business from claims that are beyond those made in the unfair dismissal application. Of particular significance was the use of the word “and” in the release clause when referring to “the employment, proceedings and the termination”. The Court held there was a clear linkage between the claims in relation to the employment and termination and the “proceedings” (that is, the unfair dismissal application).
In short, the release clause only extended to employment-related claims linked to the unfair dismissal claim. Therefore, the business was not able to rely on the Deed as a bar to the negligence claim.
Had the word “or” been used rather than “and”, the outcome most likely would have been different.
The end result of the case was that the former employee was successful in his negligence claim, with the Court ordering the employer to pay out more than $1.5 million in damages and loss of past and future earning capacity to the former employee.
Lessons for Employers
Deeds are an important tool when resolving employment disputes. In particular, the release clauses within Deeds are usually designed to ensure that the settlement resolves all issues in dispute between the parties (to the extent permitted by law), allowing the parties can move on without the prospect of further litigation hanging over them.
Clearly, a well drafted settlement document can help prevent future claims (and, where a claim is made, can be used to have the claim dismissed). However, in our experience, businesses sometimes enter into Deeds without sufficiently scrutinising the terms or obtaining legal advice. This can create a risk for the business. For example, in unfair dismissal matters employers might be invited to use the standard ‘terms of settlement’ document offered up by the Fair Work Commission conciliator. While the simplicity of those types of documents might be attractive, businesses should exercise care. As the above case demonstrates, minor drafting issues can have significant implications.
If you require assistance with drafting or reviewing settlement documents, please get in touch with one of our employment lawyers or call 1300 565 846.
Case reference: Elisha v Vision Australia Ltd  VSC 754
The full Decision can be accessed here.