Ending employment is one of those parts of running a business that can feel surprisingly high-stakes - even when you’re trying to do the right thing.
You might be dealing with a resignation, a performance issue, a restructure, or a “mutual parting of ways” situation where everyone wants to move on quickly and calmly. But from a legal risk perspective, employment exits can be a flashpoint: misunderstandings about final pay, allegations about the reason for the exit, and disputes about what was said (and promised) during the process.
That’s where an employment deed of release can be a helpful tool. It’s not something you need for every exit, but in the right circumstances it can give you certainty, set expectations, and reduce the risk of future claims.
Below, we’ll walk you through what an employment deed of release is, when it’s typically used, what it usually covers, and common mistakes Australian employers should avoid.
What Is An Employment Deed Of Release?
An employment deed of release (sometimes called a “deed of release”, “deed of release and settlement”, or “employment separation deed”) is a formal legal document used to record the terms on which an employee’s employment ends.
Its main purpose is typically:
- To document the exit terms clearly (for example, final pay, notice, return of property, and post-employment obligations).
- To settle potential disputes (or prevent disputes from arising).
- To provide releases, meaning both parties agree not to bring certain claims against each other in the future (subject to some important limits).
A deed is different to a standard contract. In practical terms, deeds are often used for settlements because they can have technical advantages (including around “consideration” - basically, something of value being exchanged). The key point for most small business owners is that a deed is intended to be a serious, final document that records the agreement.
It’s also common for an employment deed of release to sit alongside other exit paperwork. For example, you might still provide a separation letter confirming end date and final pay, and your payroll team still needs to process entitlements correctly.
When Should You Use An Employment Deed Of Release?
You don’t need an employment deed of release for every employee who resigns. But there are several situations where it can be especially useful as an employer.
1. When You’re Offering An Exit Payment Beyond Minimum Legal Entitlements
A deed of release is often used when you’re offering something extra in exchange for the employee agreeing to release claims.
For example, you might offer:
- an additional “ex gratia” amount (an extra goodwill payment)
- an agreed notice payment or “go away” amount
- an agreed redundancy arrangement (particularly where there’s disagreement about whether redundancy applies)
- payment of a discretionary bonus (or part of it)
In many cases, the employee is more likely to sign the deed if they receive a clear benefit beyond their strict legal minimums - and that benefit should be clearly documented.
2. When There’s A Dispute (Or A Real Risk Of One)
If there’s already tension - for example, a performance management process, allegations of bullying or discrimination, or a disagreement about pay - then a deed can help set a clean line in the sand.
It can also be useful where you’re ending employment “without admissions”, meaning you’re not agreeing with the allegations, but you want to resolve the matter commercially.
3. When Ending Employment By Mutual Agreement
Sometimes an exit is nobody’s “fault”, but it’s clear the relationship isn’t working. In that situation, you might agree to a mutual separation date and settlement terms.
This is often documented through a mutual separation agreement structure, which may be drafted as (or include) a deed of release, depending on the circumstances.
4. For Senior Employees Or Sensitive Roles
If the departing employee had access to commercially sensitive information (pricing, strategy, customer lists, software, trade secrets), an employment deed of release can reinforce confidentiality and post-employment obligations.
While you may already have these in your employment agreement, the deed can restate the obligations and include practical return/delete obligations (and timelines) that reduce business risk. If your employment contract includes post-employment restraints, the deed can also restate those terms - but whether restraints are enforceable still depends on the wording and whether they’re reasonable in the circumstances.
5. When You Need A Clear Record Of What Was Agreed
Handshake exits can cause real problems later. If your employee later says, “I was promised X,” or “I was forced to resign,” your best protection is having a clear written agreement signed by both parties.
A deed of release helps you capture the detail while it’s fresh and reduce “he said / she said” issues.
What Should An Employment Deed Of Release Include?
There’s no single template that fits every business. But most Australian employment deeds of release include a similar set of clauses, tailored to the situation.
1. The Agreed End Date And What Happens Until Then
The deed should clearly set out:
- the employee’s final day of employment
- whether they will work out notice, or whether you will make a payment instead
- whether they are on garden leave (if applicable)
- any directions about handover duties and return of business property
If you’re paying out notice, the deed should line up with your payroll approach and Fair Work requirements. In many cases, employers rely on payment in lieu of notice to bring the employment relationship to an end quickly and reduce disruption.
2. Final Pay And Entitlements (And What’s “Extra”)
This is a core section. It’s where many disputes happen, and where clarity is crucial.
The deed usually separates:
- legal entitlements (for example, accrued annual leave, any outstanding wages, and applicable redundancy pay)
- settlement amounts (the additional amount you’re offering in exchange for the release)
It should also clarify practical items like the payment date and, where relevant, the intended tax treatment and whether super is payable on particular components (this depends on what the payment is for). Because tax and super treatment can be complex and fact-specific, it’s a good idea to confirm the payroll and tax treatment with your accountant or payroll adviser.
If redundancy is involved, many businesses like to estimate costs early so they can make informed commercial decisions. A tool like a redundancy calculator can help you get a rough idea - but the legal position still depends on the award, agreement, contract terms, and the specific circumstances.
3. Releases (What Claims Are Being Settled?)
The “release” is the heart of the document.
Typically, the employee agrees to release the employer (and often related parties like directors, officers, and associated entities) from claims connected with their employment and its termination.
Depending on the matter, releases may cover claims relating to:
- unfair dismissal
- general protections/adverse action
- breach of contract
- workplace bullying and discrimination allegations
- underpayments (this one needs careful handling - you generally can’t “contract out” of statutory minimums)
Importantly, not all claims can be waived, and some rights cannot be signed away under Australian law. This is why tailoring matters - a “one size fits all” deed can create false confidence.
4. Confidentiality And Non-Disparagement
Most deeds include confidentiality terms, often covering:
- the existence of the deed
- the settlement amount
- the circumstances of the exit
Non-disparagement clauses are also common - these typically require both parties not to make negative comments about the other. For a small business, this can be particularly valuable where reputational harm could affect customers, suppliers, or staff morale.
That said, confidentiality clauses need to be drafted carefully to allow normal business operations (for example, telling your accountant, insurer, or professional advisers).
Even if you have an Employment Contract in place, the deed is a good time to get practical and specific about what must be returned, such as:
- laptops, phones, keys, uniforms
- documents (physical and digital)
- access cards and logins
- customer lists, templates, and internal playbooks
It can also require the employee to delete business data from personal devices and accounts (where lawful and reasonable), and confirm they have not kept copies.
6. References And What You Can (And Can’t) Say
If the employee wants a reference, this can be dealt with in the deed (for example, an agreed statement of service, or confirmation that you’ll provide a neutral reference limited to dates and role).
This can reduce the chance of future disputes about what was said to prospective employers.
7. No Admissions And “Full And Final Settlement” Wording
In many matters, you’ll want the deed to record that the settlement is made:
- without admissions of liability
- as a full and final settlement of the agreed claims
This helps both parties move forward without turning the deed into a “confession” document.
8. Practical Legal Protections (Warranties, Advice, Signing)
It’s common for deeds to include terms confirming the employee:
- had the opportunity to get independent legal advice
- signs voluntarily (not under duress)
- understands the effect of the releases
From an employer perspective, these terms matter because they reduce the risk of the deed later being challenged.
Common Mistakes Employers Make With Employment Deeds Of Release
Even well-intentioned employers can create risk if the process is rushed or poorly documented. Here are some common pitfalls we see.
1. Treating The Deed As A “Quick Fix” For An Unfair Process
A deed of release isn’t a magic wand that erases procedural issues.
If a dismissal process was harsh, inconsistent, or poorly managed, the employee may be less willing to sign - and if they do sign, they may later argue they were pressured or didn’t understand what they were signing.
Where you’re concerned about whether the termination process is defensible, it’s worth getting advice early (before the exit meeting, not after). In many cases, a structured approach aligned to Fair Work principles helps reduce the risk of a dispute in the first place.
2. Not Clearly Separating Entitlements From Settlement Benefits
If the deed bundles everything together in a single “lump sum”, it can create confusion about what was owed anyway versus what is being offered for the release.
This matters because employees can’t generally waive statutory entitlements. If the deed tries to “trade off” minimum rights without offering something extra, it may be less effective and more likely to be challenged.
3. Underestimating Payroll And Tax Complexity
Employment exits can involve multiple categories of payments, each with different treatment.
Your deed should be consistent with your payroll approach and account for things like:
- ordinary earnings versus leave payouts
- superannuation (what is and isn’t payable)
- tax withheld
- timing of payments
It’s also important your deed doesn’t accidentally promise something you can’t deliver (for example, a “tax-free” payment where it isn’t legally tax-free). For anything tax-specific, it’s worth checking the intended treatment with your accountant or payroll provider.
4. Forgetting About Restraints, Confidentiality, And Ongoing Obligations
If your departing employee is going to a competitor, starting their own business, or has access to valuable information, your exit documents should reinforce confidentiality and any post-employment protections.
Sometimes those protections exist in the employment contract - but the deed can restate and clarify them (within legal limits). Keep in mind that restraints are only enforceable to the extent they’re reasonable and properly drafted for your business and the employee’s role.
5. Using A Generic Template That Doesn’t Match The Situation
It’s tempting to grab a template and reuse it for every exit.
But small drafting choices can have big consequences, including around:
- who is released (the company only, or also directors?)
- what claims are being settled
- how confidentiality works in practice
- how final pay is calculated and when it’s paid
If you’re regularly managing exits, it’s worth having a lawyer prepare a deed format that suits your business and can be adapted safely.
How Does An Employment Deed Of Release Fit With Your Other Employment Documents?
An employment deed of release works best when it aligns with the rest of your employment paperwork.
In practice, that often means checking it against:
- Employment agreements - to confirm notice clauses, confidentiality, IP, and any restraint terms (if you’re unsure whether your current agreement is fit for purpose, it may be time to update your Employment Contract templates).
- Workplace policies - especially where the exit is connected with performance, conduct, bullying, or safety issues (a clear Workplace Policy framework makes exits less messy).
- Exit documentation - for example, termination letters, separation certificates, and final pay confirmations.
If you’re trying to “wrap up” a difficult exit, you may also use a more comprehensive settlement document like a Deed of Settlement, depending on whether there are broader disputes beyond the employment relationship.
For some employers, it’s also useful to have a consistent internal process for exits, supported by a set of documents that work together. That’s where a package like an Employee Termination Documents Suite can reduce risk, because your documents are designed to align and your process is clearer.
Key Takeaways
- An employment deed of release is a formal document that records agreed exit terms and usually includes releases to reduce future legal claims.
- You’ll often use an employment deed of release when there’s a dispute (or risk of one), when you’re offering an additional settlement amount, or when the employee held a senior or sensitive role.
- A well-drafted deed should clearly cover end date, final pay, what is “extra”, confidentiality, return of property, and practical protections like “no admissions” and confirmation the employee can get independent advice.
- Common mistakes include relying on generic templates, bundling entitlements and settlement amounts together, and assuming a deed fixes problems caused by an unfair or poorly managed process.
- Deeds work best when they align with your employment agreements, workplace policies, and termination paperwork, so your business has a consistent and defensible exit process.
If you’d like help preparing an employment deed of release (or managing an employee exit end-to-end), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
