Knowing when to offer terms to settle a matter (or “Deed” a person) is as much of a strategic decision as it can be a commercial decision. Offering an employee something in excess of their contractual or statutory entitlements can be the ideal sweetener for convincing them to agree to a release from existing or potential legal claims. It can also certainly save an organisation a lot of time and worry associated with litigation. Here’s our take on calculating your organisation’s exposure and considering if you need to do the Deed.

Consider a Deed if:

• You’re in the midst of litigation, or there is significant potential for litigation: Even if you think your business might win, it is important that you do a cost-benefit analysis as to whether it is worth your business defending a claim, or if it would be better placed taking steps to bring the matter to an end. Standing on principle can, and likely will, cost more time and money than you bargained for. And even if you do “win” (in the legal sense), a court decision can be appealed – more than once. Strategically and commercially, it can be better to put a Deed on the table to put a matter to bed than sink resources into litigation.

• There is significant financial or commercial risk to your organisation: If a claim or other potential consequences of a claim (for example, penalties imposed under legislation, which in certain circumstances can be up to $54,000 per breach) are significant from a financial or commercial perspective, they can threaten the ongoing viability of your business. In those circumstances, it is important to consider the risk of the financial impact of defending a claim or even an adverse decision against your business against the shorter term “pain” that may attach to settling the matter under Deed.

• There is a significant reputational risk to your organisation: Depending on the type of claim involved, litigation or threatened litigation can have a significant impact on the reputation of your business. This is especially so if the matter is a sensitive one or one that may peak the interest of the media (for example, underpayment of employees or the termination of a high-profile executive’s employment). One way of minimising these risks is to resolve the matter under Deed, as Deeds typically contain a confidentiality clause requiring the parties to keep their lips sealed about the existence and terms of a Deed.

Reconsider the Deed if:

• The cost of paying a ‘premium’ to settle is not justified in the circumstances: It is unlikely that an employee will enter into terms of settlement (and a Deed) unless they perceive that they are receiving benefits over and above their statutory or contractual entitlements. In many cases, and typically where executives are concerned, the employee’s contractual entitlements are far in excess of their minimum statutory entitlements, and the costs of defending a claim in respect of those contractual entitlements, when considered against the prospects of successfully defending the claim, can be justified by your business.

• Settling the claim is unlikely to be in the best interests of your business: There will likely be occasions when principle triumphs over concerns about the potential cost of a claim in your cost-benefit analysis about whether to settle a claim. In those circumstances, you should be clear about why your business will not pursue a commercial settlement – whether it is to establish a precedent or because you are confident that your business can support its position. It is important to remember though, that how you communicate your business’ position may impact on your strategic options further down the track. For example, if circumstances do change, it remains open to your business to pursue settlement, but the likelihood of settling will be impacted by the relationship between the parties at that time.

There is a growing level of understanding about the commercial and strategic advantages of entering into a Deed – so don’t feel like it might appear as though your business is admitting defeat if it does enter into a Deed. However, it is also important to consider how the resolution of a matter will be communicated, as sometimes the perception created by the circumstances of a matter being resolved (including entering into a Deed) can be more damaging than your business taking the risk and losing.

These are general examples and every situation is different and has its quirks. If you need assistance with drafting, negotiating or entering into a Deed of Release, call PCS today.