The end of the employment relationship can be a challenging time for both employers and employees.
The parting of ways can be the result of many factors and there can be lots of issues at play that need resolution before the parties feel they can move on. One legal instrument commonly used to provide the parties with assurances about the finalisation of matters between them is a deed of release.
In the employment context, a deed of release is an agreement between the parties that they will release each other from claims they might have had against each other arising out the employment or the termination of the employment.
Sometimes a deed of release will provide for the resolution of specific issues as well as releasing the parties generally.
In a practical legal sense, a deed of release operates as a bar to a party later bringing a claim about the matters covered by the deed.
But what happens if something later comes to light about the conduct of one of the parties during employment that was not known to the other party at the time they entered into the deed?
This issue was recently examined by the Queensland Court of Appeal in Wichmann v Dormway Pty Ltd [2019] QCA 31.
The employee in this case worked as an office manager and had responsibility for managing her employer’s accounts. During her employment, the employee diverted some of her employer’s money into her own personal accounts. The employer initially discovered that she had diverted $2,809.42 and decided to terminate her employment, despite the employee’s offer to repay the money.
The employer and the employee entered into a deed of release which contained terms regarding the employee’s departure. In particular, the deed said that the parties had agreed to settle all matters relating to the employment, the cessation of the employment and any matters arising therefrom. The deed also said:
In consideration for the agreements herein, [the employer] hereby releases and discharges [the employee] from all causes of action, actions, suits, arbitrations, claims, demands, costs, debts, damages, expenses and legal proceedings whatsoever arising out of or in any way concerned with:
(a) The Employment or its termination or any circumstance relating to its termination; or
(b) Any matter, act or circumstances occurring between the date of termination of the Employment and the date of this agreement; save as to any unlawful act; and
(c) Whether arising under statute, common law or equity,
Or any of these which [the employer] now has or had the right to bring against [the employee] at any time hereafter, but for the execution of this agreement; save as to any matter relating to the enforcement of this deed.
Shortly after executing the deed, the employer discovered that the employee had diverted much more than $2,809.42 and had actually taken $321,593.85.
The employer commenced legal proceedings against the employee to recover the money and applied for a summary judgment. The employee claimed that the deed prevented the employer from bringing its claim. The judge in the first instance granted the employer’s application. The employee appealed against that judgment to the Court of Appeal.
The Court of Appeal found that the employee would have been aware that at the time of entering into the deed, she had misappropriated significantly more than $2,809.42 and chose not to disclose this fact to the employer. Therefore, it was unconscionable for the employee to induce the employer into entering into the deed (by way of her silence on the matter) when she knew that the employer did not know the full extent of her conduct.
Further, the Court of Appeal held that the employee owed a duty of good faith to the employer and under that duty was obliged to inform the employer about her diversion of the money before it entered into the deed. In this sense, the Court of Appeal said, it was arguable that the employee had committed common law fraud and the entire deed could be set aside.
The Court of Appeal ordered that the employee’s appeal be dismissed with costs, and the summary judgment of the judge in the first instance remain intact.
Lessons for employers
When an employer enters into a deed of release with an employee, it should be prepared to release the employee from any claims it may have arising from the employee’s employment, termination, or any other matters specifically identified in the deed.
However, if matters of serious misconduct or unlawful activity (such as fraud) come to light after the execution of the deed, those matters may still be pursued by the employer where the employee failed to disclose the full extent of their actions to the employer.
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