Employment contracts are much like light switches. They govern the flow of energy (or work) in the employment relationship, keeping the light (employment) on. But when the time comes for that light to be turned off – when employment ends – someone has to flip the switch. This is where resignation, dismissal, and deeds of settlement come into play.
Let’s break it down simply.
Who Flips the Switch?
When an employment relationship ends, the light switch – the employment contract – must be turned off by someone. But who does it depends on the circumstances:
• Resignation: This happens when the employee decides to turn off the switch. It’s a voluntary act where the employee signals their intent to end their role within the organisation. Typically, the employee provides notice as outlined in their contract or industrial agreements.
• Dismissal: In this case, it’s the employer who flips the switch. Dismissal occurs when the employer decides to terminate the employment relationship. This could be due to redundancy, performance issues, misconduct, or other factors. Employers must follow strict legal and contractual obligations when dismissing an employee to ensure fairness and compliance with the law.
While both result in the light being turned off, who flips the switch makes a big difference in terms of legal and reputational implications.
Why Does It Matter Who Turns Off the Switch?
The difference between resignation and dismissal isn’t just semantics – it has real-world implications:
1. Legal Rights and Obligations
Resignation generally doesn’t give rise to claims such as unfair dismissal unless it was forced (known as constructive dismissal). Dismissal, on the other hand, can trigger claims for unfair dismissal, breach of contract, or adverse action, depending on the circumstances.
2. Notice and Entitlements
When an employee resigns, they’re usually required to provide notice as outlined in their employment contract. If they fail to do so, the employer may have grounds to deduct certain entitlements. Conversely, if an employer dismisses an employee, they must provide notice or payment in lieu, except in cases of serious misconduct.
3. Reputation and Future Prospects
Resignation often carries less stigma than dismissal. Being able to state on future job applications that you resigned, rather than being dismissed, can have a significant impact on career opportunities.
What Is a Deed of Settlement, and Why Include Resignation?
When the employment relationship ends in a mutually agreed way, it’s common to formalise the terms in a deed of settlement. This legally binding agreement sets out the conditions under which the contract is terminated and ensures both parties understand their rights and obligations.
One key feature of many deeds of settlement is the inclusion of resignation. Here’s why:
1. Clarity and Certainty
Including resignation in the deed makes it clear that the employee voluntarily flipped the switch, ending the contract. This avoids disputes about whether the employment ended by resignation, dismissal, or mutual termination.
2. Avoiding Legal Claims
If the deed specifies that the employee resigned, it can preclude claims such as unfair dismissal, general protections, or breach of contract. This creates a “clean break” for both parties, ensuring the end of the employment relationship is final and without ongoing disputes.
3. Reputation Management
For the employee, agreeing to include resignation can protect their professional reputation. It allows them to move forward without the potential stigma of being dismissed.
4. Compliance and Finality
The deed ensures all outstanding obligations – such as notice payments, leave entitlements, and waivers of claims – are settled. By documenting the reason for termination, it reduces the risk of misunderstandings or further disputes.
An Analogy: Turning Off the Light Switch
Think of an employment contract as a light switch. As long as the switch is on, the employment relationship continues. But when it’s time for the light to go out, someone has to flip the switch – either the employee or the employer.
Including resignation in a deed of settlement is like agreeing on who flipped the switch and why. It ensures everyone knows how and why the light went out, leaving no room for disputes or confusion later.
The Importance of Getting It Right
Whether you’re an employee or an employer, understanding who flips the switch and how it’s recorded can make all the difference. For employees, it can impact your career, your reputation, and your legal rights. For employers, it’s a way to protect your organisation from future claims and ensure compliance with legal obligations.
By formalising these details in a deed of settlement, both parties can walk away with clarity and peace of mind, knowing the light has been turned off in a way that’s fair, final, and agreed upon.
If you’re facing a situation where a deed of settlement is being proposed, it’s crucial to understand the implications of resignation versus dismissal. Both have their place, but agreeing on who flipped the switch – and documenting it clearly – is essential for a smooth and fair transition.
For more guidance on employment contracts, resignations, or dismissals, visit 1800ADVOCATES or contact us directly.
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