Navigating Settlements and Deeds of Release

Insights from Mallegowda v Hawkesbury City Council [2024]

In the recent Mallegowda v Hawkesbury City Council case, we get a crucial look at how settlements, deeds of release, and legal agreements come into play when employment disputes arise. This case is significant because it highlights how settlement negotiations can be legally binding, even before all formal documents are signed, and demonstrates the importance of clarity when negotiating the terms of a settlement.

Case Overview:

In March 2024, Mr. Shashikanth Mallegowda, a former employee of Hawkesbury City Council, initiated two legal proceedings—one for relief from victimisation under the Industrial Relations Act 1996 (NSW) and the other for unfair dismissal. After initial conciliation attempts failed, the case moved to arbitration. During negotiations in June 2024, the parties appeared to reach a settlement, but the process became contentious when Mr. Mallegowda refused to sign the deed of release, arguing that he had accepted the settlement terms “without tax.”

Key Legal Takeaways:

1. Binding Agreements Before Signing Deeds of Release:

One of the most critical elements of this case was the debate over when a settlement agreement becomes binding. In this case, the Industrial Relations Commission (IRC) ruled that Mr. Mallegowda had, in fact, agreed to the settlement terms on 18 June 2024 through email. His acceptance was considered binding, even though he later refused to sign the deed.

The court found that while the deed of release was still to be signed, the parties had already reached a “concluded bargain.” This is a vital point for HR professionals and businesses to remember—negotiations and emails can be binding if they clearly outline the settlement terms, even if the formal deed hasn’t been signed yet.

2. The Role of the Deed of Release:

In employment disputes, a deed of release typically includes the terms of the settlement, along with obligations such as confidentiality, non-disparagement, and mutual release from any future claims. In the Mallegowda case, the deed required the settlement sum of $17,000 to be taxed in accordance with Australian tax law, a point Mr. Mallegowda contested after accepting the settlement.

Despite this, the IRC ruled that the deed was merely a condition of performance. In other words, the deed was intended to formalise the terms already agreed upon and wasn’t necessary to make the agreement binding.

3. Importance of Clarity in Settlement Offers:

A notable aspect of this case was the confusion over the tax treatment of the settlement sum. Mr. Mallegowda believed the offer he accepted was “without tax,” while the council’s offer clearly stated that the $17,000 was a gross amount subject to taxation. This discrepancy led to his refusal to sign the deed of release.

This highlights the importance of being explicit in all settlement communications. Employers should ensure that all terms, including any tax implications, are clearly spelled out in settlement offers to avoid any potential misunderstandings.

4. Legal Precedent:

The decision in Mallegowda follows legal principles outlined in the famous Masters v Cameron case, which categorises different types of agreements based on whether parties intend to be bound immediately or only upon signing a formal document. In this case, the IRC found that the agreement fell under the second category of Masters v Cameron—the parties had reached a binding agreement, and the signing of the deed was simply a condition of performance.

Conclusion: What Can HR Learn from This Case?

For HR practitioners and business owners, the Mallegowda case reinforces several key lessons:

• Be careful in settlement negotiations: Emails and verbal agreements can create binding obligations even if the final deed has not been signed.
• Clarity is essential: Ensure that all terms, especially financial aspects like tax, are explicitly stated in your settlement offers.
• Deeds of release are powerful tools: These formal documents protect both parties by ensuring that all claims are resolved and that both sides understand their ongoing obligations, such as confidentiality and non-disparagement.

This case is a reminder that employment disputes can become complex, and legal advice should always be sought when drafting or negotiating deeds of release. For businesses, it’s essential to engage in clear, well-documented communication to avoid potential legal pitfalls during the settlement process.

By taking these lessons to heart, you can better protect your business from future disputes and ensure smoother resolutions when conflicts arise.

Make sure your processes are rock-solid! If you have any questions about drafting deeds of release or employment settlements, feel free to reach out to us at HR Gurus.

Written by Emily Jaksch