When Should Singapore Employers Use a Deed of Release?
When an employee leaves a company, there may be legal issues involved, such as outstanding obligations between a company and the employee, or the potential for an employment-related claim against the company.
One way to address these legal issues is through signing a deed of release. This article will look at:
What is a Deed of Release?
A deed of release, sometimes called a deed of settlement, is generally used to resolve a legal dispute by releasing parties of their legal obligations to each other.
In an employment context, a deed of release can resolve or prevent disputes between a company and an employee. It can do this by:
- Releasing the company from employment-related claims. If an employee has a potentially valid employment claim against the company, he can choose to give this up in exchange for some form of payment.
- Introducing new obligations that state how any existing legal obligations can be released. When an employee leaves a company, there may still be deliverables owed to the company. Alternatively, the company may owe the employee some entitlements such as wages, bonuses or leave. In such cases, these existing legal obligations can first be clarified (expressly stated in the deed), followed by an agreement on how such obligations can be released. For example, an employee that is owed leave can have that leave encashed via a deed of release with the company, if both parties are agreeable.
- Introducing restrictions on the employee after leaving the company. For example, a deed of release can contain confidentiality or non-disparagement clauses. The confidentiality clause can require the employee to not release sensitive information to the public, while the non-disparagement clause requires the employee to avoid making damaging remarks about the company. These clauses are useful when departing employees may possess sensitive information about the company, or hold grudges against the company.
How is a Deed of Release Different from an Employment Contract?
While a deed of release is legally binding and can be enforced in court just like an employment contract, deeds of release differ from employment contracts in some ways.
First, a termination clause in an employment contract usually does not clarify or release existing obligations. A termination or resignation clause is typically limited to the conditions and mechanisms to end an employment relationship. For example, a termination clause may only state that a company can terminate an employee for poor performance after a specified notice period. It may not state any existing obligations between the parties at the time of termination and how these obligations can be released.
Second, a resignation or termination clause in an employment contract will generally not protect the company from employment-related claims. Unlike a deed of release, a resignation or termination clause in the employment contract does not release the company from any employment-related claim that an employee might bring against it.
When Should I Use a Deed of Release?
A deed of release is best used to resolve a dispute or prevent one from occurring in the first place, especially when a company is parting ways with an employee on bad terms. Thus, a deed of release can be useful:
When you wish to protect your company against employment-related claims by the affected employee
As the deed of release can discharge legal obligations between parties, it can help prevent one party from bringing a claim against the other party. This saves legal costs and time by avoiding possible litigation.
When the cost of any potential employment-related claim is higher than a settlement
Do note that the cost of any employment-related claim is not limited to the claim being made. There are litigation and mental costs as well, such as the lawyer and court fees, and mental stress. It may be more cost-effective to offer a settlement instead. Here, a deed of release may be helpful because it allows both parties to arrive at a fair settlement amount without worrying about additional costs that come with litigation.
When there is a big reputational risk to your company
An aggrieved employee with significant influence over your clients may be at risk of badmouthing your company to the clients, damaging your reputation. Challenging those remarks in court may cost you time and money while failing to repair the relationship with your clients. In this regard, having your employee sign a deed of release with a non-disparagement clause may be more effective in preventing the employee from making negative remarks on your company to others.
When you want both parties to negotiate a satisfactory agreement that meets both their interests
A deed of release allows for a negotiation process where an employee can air his or her grievances. Negotiation can increase the goodwill between the employee and the employer and reduce the chances of a formal claim being filed. Further, the goodwill generated can also lead to a more favourable settlement amount for the employer, or a greater willingness on the part of the employee to accept a release of the employer’s obligations.
What are Some Disadvantages of Using a Deed of Release?
Despite the potential benefits of a deed of release, it does come with several drawbacks. Do keep the following considerations in mind when deciding to use a deed of release.
First, an employee may not accept the deed of release. This is especially true if the deed imposes additional and onerous obligations.
Second, your company may incur additional costs in drafting and meeting its obligations in the deed of release. These additional costs may be the result of providing adequate compensation for the additional obligations imposed by the deed of release on the employee.
Last, you may not be able to avoid litigation. For example, if the employee breaches the term of the deed, you may have to enforce the deed in court.
How to Draft a Deed of Release
A deed of release should minimally clarify and protect the interests of both parties. You may want to consider including the following clauses to help you do so.
A description of the reasons for the employee’s termination
Detailing the reasons for the employee’s termination may be useful for both the company and the employee. For the company, it can show that the employee has accepted the reasons for termination. For the employee, such a description may indicate how the termination will be communicated to the rest of the company and help preserve his or her reputation.
A clarification of any outstanding obligations between both parties
Clarifications on any outstanding obligations can include any payments owed to the employee because of entitlements, such as annual leave or bonus payments, or whether any restraint of trade clauses apply to the employee.
A clause releasing the company from future legal claims by the employee in exchange for a payment to the employee
A typical release clause would include details of the legal obligations being released. For example, it may state that an employer is being released of any claims for unfair dismissal, or that an employee is being released for any negligence during his or her course of work. Do note that some legal obligations cannot be released. One example is the employer’s making of Central Provident Fund (CPF) contributions on the employee’s behalf (see below).
A payment clause
Where the employer has agreed to compensate the employee for releasing the employer of his legal obligations, the deed of release may include a clause detailing the amount to be paid. The payment clause can also include the other payments owed to the employee, such as the encashment of leave or any outstanding wages.
A confidentiality clause
A confidentiality clause will require the parties to not disclose sensitive information to the public, whether such information relates to the deed of release or the details of the employment and dismissal.
A non-disparagement clause
A non-disparagement clause can require one party to avoid making damaging remarks against the other party, or both parties to avoid making such remarks about each other. This clause can help protect the reputation of your company and is especially useful when dealing with an aggrieved employee.
Can a Deed of Release be Set Aside?
While a deed of release is a legally binding agreement that can be enforced in court, there are some exceptions when the deed can be set aside and made unenforceable after being signed.
When a deed is not voluntarily entered into
If an employee felt pressured or forced into signing a deed of release, he or she may be able to have the deed set aside by the court. It may be wise to allow employees sufficient time to consider the deed properly and seek legal advice before signing.
When a company tries to shirk its legal obligations through a deed
There are some statutory obligations on an employer that cannot be avoided through a deed of release. For example, in Singapore, employers are legally required to contribute to their employees’ CPF accounts.
A clause in the deed of release that discharges a company from paying its employee’s outstanding CPF contributions may be set aside by the court.
When either party breaches the deed of release
If a party fails to fulfil its obligations under the deed, the court may allow the other party to set aside the deed of release. This may then free the other party from having to fulfil any of its remaining obligations under a deed.
For example, if the company fails to pay the employee under the deed, then the employee may no longer be prevented from subsequently bringing a claim against the company.
Nevertheless, if the deed of release is enforceable and has been breached by your employee, you may be able to claim compensation for breach of the deed, or an injunction to restrain the employee from continuing with his or her acts.
A deed of release can be very useful in protecting your company when parting with an aggrieved employee. It can guard against litigation and reputational damage through a legally binding agreement.
However, the enforceability of a deed of release will depend on many factors, from the clarity of the terms used to whether the employee had voluntarily agreed to the terms in the deed. Having a lawyer help you in the drafting and negotiating of the deed can help ensure that the deed is enforceable and will be complied with. Further, if your employee breaches the deed, a lawyer can advise you on the steps to enforce a valid deed.
Do contact an employment lawyer if you are considering issuing an employee a deed of release.
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