Unfair dismissal settlements; how they work

In a recent Fair Work Commission case a former employee attempted to pursue an unfair dismissal case despite having previously executed a deed of settlement with his former employer, one of the arguments apparently being that the dismissal had been unlawful and therefore so was the deed of settlement. The decision is a useful explanation of the legal mechanics of settlement agreements and deeds, known technically as an accord and satisfaction, and I have included in this post a summary of the decision which deals with the legal technicalities of settlement deeds.

It might be useful to the law students who and law schools which  subscribe to by blogs.

“At common law, the release of an accrued cause of action (for example, an unfair dismissal application) can either be by deed under seal or by agreement for valuable consideration (accord and satisfaction). 1

In Thompson v Australian Capital Television Pty Ltd 2, Gummow J explained the concept of accord and satisfaction as follows:

“Accord and satisfaction (the former being the agreement or consent to accept the latter) requires acceptance of something in place of the full remedy to which the recipient is entitled, coupled with provision of the consideration agreed upon.”

This reflected an earlier analysis of the High Court in McDermott v Black 3:

“The essence of accord and satisfaction is the acceptance by the plaintiff of something in place of his cause of action. What he takes is a matter depending on his own consent or agreement. It may be a promise or contract or it may be the act or thing promised. But, whatever it is, until it is provided and accepted the cause of action remains alive and unimpaired. The accord is the agreement or consent to accept the satisfaction. Until the satisfaction is given the accord remains executory and cannot bar the claim. The distinction between an accord executory and an accord and satisfaction remains as valid and as important as ever. An accord executory neither extinguishes the old cause of action nor affords a new one.

The distinction depends on what exactly is agreed to be taken in place of the existing cause of action or claim. An executory promise or series of promises given in consideration of the abandonment of the claim may be accepted in substitution or satisfaction of the existing liability. Or, on the other hand, promises may be given by the party liable that he will satisfy the claim by doing an act, making over a thing or paying an ascertained sum of money and the other party may agree to accept, not the promise, but the act, thing or money in satisfaction of his claim. If the agreement is to accept the promise in satisfaction, the discharge of the liability is immediate; if the performance, then there is no discharge unless and until the promise is performed.”

In Osborn v McDermott 4, the difference between accord and satisfaction and accord executory was explained this way:

“Where there is an accord and satisfaction, the agreement for compromise may be enforced, and indeed only that agreement may be enforced, because ex hypothesi the previous cause of action has gone; it has been ‘satisfied’ by the making of the new agreement constituted by abandonment of the earlier cause of action in return for the promise of other benefit. If there be mere accord executory, there is no compromise unless and until what has been agreed upon is performed, with the consequence that not only is there no discharge of the existing cause of action pending that performance, but also there is no completed agreement which can be enforced. In that sense, the enforcement of performance under a mere accord executory is a contradiction in terms. The agreement is conditional upon performance so that until performance there is nothing to enforce; and although once performance occurs the agreement becomes unconditional, there will ordinarily then be no performance left to enforce – although the resultant discharge of existing obligations may of course be insisted upon.”

There is also the possibility of a third category of accord and conditional satisfaction, where an enforceable agreement between the parties, properly construed, suspends the original cause of action rather than discharges it completely. Absolute discharge of the cause of action is conditional on performance of the agreed settlement terms. 5

Ascertaining the type of settlement agreement reached requires consideration of what the parties have agreed in accordance with well-established principles of construction, including ascertaining the objective intention of the parties and having regard to the language used to give effect to their agreement, surrounding circumstances known to the parties and the objects the agreement is intended to secure. 6

………………………………………………

In this matter, the parties reached agreement on terms including the following:

“3. RELEASE FROM CLAIMS

3.1 The Employee agrees that this Deed fully satisfies the rights (however described and however arising) that the Employee, and everyone who claims through the Employee, has or may have against the Group in connection with the Employment or the Termination.

3.2 The Employee releases the Group from all claims and liability arising directly or indirectly out of the Employment or the Termination. ‘

3.3 This release covers all claims and liability, however described and however arising. It covers claims by, and liability to, anyone who claims through the Employee. It covers claims and liability that arise in the future.

3.4 The Employer agrees that this Deed fully satisfies the rights (however described and however arising) that the Employer, and everyone who claims through the Employer, has or may have against the Employee in connection with the Employment or the Termination.

3.5 The Employer releases the Employee from all claims and liability arising directly or indirectly out of the Employment or the Termination.”

The agreed release is not conditional on any performance of other terms of the Deed, either in relation to payment of an agreed sum, return of property or otherwise. The Deed was made in circumstances where allegations had been made against Mr Gilbert six weeks earlier about inappropriate workplace behaviour and an investigation had occurred. Whether or not those allegations were warranted was never proven. Instead, the parties reached agreement to conclude their relationship on the terms set out in the Deed. The evident intention of the parties in doing so was to discharge, with immediate effect, any further action or claim against either party by the other.

In my view, the circumstances in this case and the terms of the Deed establish that there is an accord and satisfaction between the parties.

In Australia Postal Corporation v Gorman 7, Besanko J held that the existence of a binding settlement or “accord and satisfaction” extinguishes the existing cause of action and replaces it with a new cause of action based on the agreement.8 The new cause of action is not automatically of the same character as that which it replaces. Nothing on the material before me gives any support to the assertion that the accord and satisfaction between the parties is unlawful.

 The Commission has power under section 587(1) of the Act to recognise a binding settlement and to dismiss an application that has no reasonable prospects of success on that basis. 9

I am satisfied that the accord and satisfaction between the parties is binding on them and a complete answer to Mr Gilbert’s unfair dismissal application. For that reason, the unfair dismissal application has no reasonable prospects of success.

The application is dismissed.”

Gilbert v Arafmi Qld Inc. (2018) FWC 3287 delivered 7 June 2018 per McKinnon C