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Late last year trucking company Atkins Freight Services got a nasty shock when the Federal Court set aside two Deeds of Settlement (also known as Deeds of Release) they had entered into with former employees over underpaid entitlements.

The Court ordered Atkins Freight Services to pay the workers over $23,000 and $30,000 respectively. To add further insult to injury, the Court opted not to off-set the amount already paid to the employees under the Deeds ($10,000 and $4,750).

Why were the Deeds of Settlement not upheld?

The Deeds used in this case were relatively standard pro forma documents, except that they described the employer’s payments as settling:

“any claims for wages arising out of your employment with us…, any such claims that you might have as at the date of execution of this Deed…. whether you are presently aware of any right to make such a claim”.

The criticisms that were made of this Deed included:

  1. It did not specify the period of time to be covered by the agreement, nor the particular industrial entitlement that was to be foregone in return for a monetary sum;
  2. A Deed of Settlement is only binding where it represents the compromise of a genuine dispute, taking into regard the risks associated with litigation. This Deed did not identify a genuine dispute;
  3. Even if the Deed were binding, since it only referred to “wages”, it would not have prevented a claim for recovery of underpaid allowances or expenses, etc.

Implications for business owners

The content of a Deed can be scrutinised by a Court or Tribunal to determine:

  1. Whether there really was a genuine dispute;
  2. Whether the terms of the Deed relate to that dispute; and if so
  3. Whether the issue before the Court or Tribunal is covered by the terms of the Deed, therefore preventing a party from taking legal action.

“Catch-all” or “just-in-case” deeds which are drafted in an attempt to discharge all possible claims, are at risk of being found ineffective because they do not meet the criteria of settling a genuine dispute. The less the settlement sum reflects the total value of the release, the less likely a Court will uphold the Deed.

It is important to note that the Fair Work Ombudsman is not bound by the terms of a Deed of Settlement entered into between an employer and its employee, and it’s up to the judge’s discretion whether any settlement sum paid pursuant to a Deed of Settlement is to be taken into account in making an order for the payment of minimum entitlements.

A Deed of Settlement cannot be used as a “get out of jail free” card when workers have been denied their minimum statutory entitlements. Deeds of Settlement remain a useful tool for resolving a genuine dispute, however, it is best to ask for some drafting help from the experts to ensure these Deeds are binding.