Employment Separation Agreement
An employment separation agreement documents the agreed terms for ending an employment relationship, including severance, final pay, and mutual release of claims.
What is a Employment Separation Agreement?
An employment separation agreement (also called a separation deed or deed of release) is a contract between an employer and a departing employee that documents the agreed terms of the employment's end, including any severance payment, the treatment of final pay and leave entitlements, post-employment obligations, and a mutual release of claims.
In Australia, employers often use separation agreements when terminating employment to obtain a release from any unfair dismissal, general protections, or other claims the employee might otherwise bring. The agreement must be genuinely voluntary — an employee cannot be coerced into signing — and must provide adequate consideration for the release.
When do you need a Employment Separation Agreement?
- ✓When terminating an employee's employment by agreement (not for cause)
- ✓When making an employee redundant and offering a severance package above the NES minimum
- ✓When resolving a dispute with a current or former employee
- ✓When an employee resigns and the employer wants to document the separation terms
Key provisions to include
Termination Date
The agreed date on which employment ends.
Severance Payment
Amount, payment timing, and tax treatment of any severance payment.
Final Pay
Settlement of all outstanding wages, accrued annual leave, and any other entitlements.
Reference
Whether the employer will provide a reference and the form it will take.
Confidentiality
The employee's ongoing obligation to keep business information confidential.
Post-Employment Restrictions
Any surviving non-compete or non-solicitation obligations.
Mutual Release
Both parties release each other from all claims relating to the employment.
Non-Disparagement
Agreement by both parties not to make negative statements about the other.
Common mistakes to avoid
Pressuring an employee to sign on the day of termination — they should be given time to consider and seek advice
Including releases of Fair Work Act general protections claims without specific legal advice — some claims cannot be validly released
Not settling all outstanding entitlements (accrued leave, unpaid wages) in the agreement
Not ensuring the agreement is in the form of a deed to be legally effective as a release of claims in most Australian jurisdictions
Frequently asked questions
Can an employment separation agreement release unfair dismissal claims?
With appropriate structure. Under the Fair Work Act, a valid settlement of a Fair Work Commission general protections or unfair dismissal application requires a deed of release that is a 'written and signed agreement' reached through conciliation or agreement. It is strongly recommended to obtain legal advice when using a separation agreement to release Fair Work claims.
How much should I pay in severance?
This depends on the NES redundancy pay entitlements (for genuine redundancy), the employee's contract, and commercial negotiations. NES redundancy pay ranges from 4 weeks (1–2 years' service) to 16 weeks (9+ years' service). Separation agreements often include additional amounts as ex-gratia payments in exchange for a release of claims.
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