Thinking | 8 April 2019

Employer able to recover stolen funds from employee despite settlement agreement

In a recent decision¹, the Queensland Court of Appeal upheld a decision that a deed of release, drafted in general terms to release the employee from all claims arising from her employment, did not extend to conduct the employer was unaware of at the time of execution.

The case

The employer, Dormway, terminated the employment of its office manager, Wichmann, after discovering she had misappropriated $2,809 of company money by diverting it to her own bank account. Although she stated that this was an inadvertent diversion and offered to repay the amount, Dormway had lost trust in her and terminated her employment. The parties entered into a deed of release containing terms of her departure whereby Dormway would pay Wichmann a redundancy payment of $42,669, less the misappropriated sum.

The deed contained mutual releases and the terms were drafted generally to discharge Wichmann from ‘all causes of action, actions, suits, arbitrations, claims, demands, costs, debts, damages, expenses and legal proceedings’ arising from, or in connection with, her employment or its termination.

Subsequently, Dormway discovered that Wichmann had misappropriated much more than the $2,809. In fact, it came to light that she had taken $320,000 of company money and Dormway commenced proceedings to recover the amount. Wichmann defended the proceedings on the basis that the release precluded the claim.

The judge at first instance found in favour of Dormway and ordered Wichmann to pay the amount of the claim, plus interest and costs. Wichmann appealed the decision.

Decision on appeal

Dismissing the appeal, the Court upheld the decision at first instance, finding that the release did not protect Wichmann from the misappropriation claim. Despite the release being drafted in all-encompassing general terms, Dormway was entitled to recover the additional money because it was unaware of the extent of Wichmann’s misappropriation when executing the release.

The Court noted that releases can be drafted to be effective against liabilities the parties are unaware of, but to do so there must be plain language to this effect included in the release.

The Court commented that Wichmann was also prevented from relying on the release because:

it was ‘unconscientious’ – equity would prevent Wichmann from relying on the release when she knew that Dormway was unaware of the additional sum she had taken; and
Wichmann had a duty of good faith to disclose the truth to Dormway in circumstances when her silence induced Dormway to execute the release. Her reliance on the release would, therefore, be ‘common law fraud’.

Lessons for employers

Key lessons for employers arising from this case include:

When drafting releases, it is important to be aware that even if the terms of the release state that no further causes of action can arise between the parties, this will not always be the case.
If the intention when drafting a release is to ensure a final resolution is reached and no further related disputes can arise, the parties should use clear language to indicate that any claims the releasing party is unaware of are being surrendered.
Employers should think carefully prior to including mutual releases in settlement agreements involving employees, particularly where the employer’s trust in the employee has diminished.

¹Wichmann v Dormway Pty Ltd [2019] QCA 31

This article was written with the assistance of Maia Joseph, Law Graduate.