A guide to ex gratia payments

By Vivian Michael | Startup Contracts

A guide to ex gratia payments

Photo by CoWomen on Unsplash

The word ex gratia means by favour.

And, it’s commonly used in a legal context - in a nutshell it's a payment that is made without a legal obligation.

So below is what you need to know about ex gratia payments.

In a hurry? Jump ahead. 

Ex gratia offers 

You’ll most commonly see or hear the term used when a legal dispute is being settled.

And, used in this context it usually means, ‘although we don’t have to pay you anything, we are going to because we want you to sign something”.

Given that ex gratia payments are usually mentioned around dispute settlements, you’ll likely find them in terms of settlement, a deed of release or a deed of settlement (all these terms simply mean - a legal agreement to summarise settlement terms for a dispute.

Some things you need to know that are outside the scope of this article

There’s a difference between a deed of settlement and a terms of settlement - refer to this article on deed vs agreement.

Your deed should be fair - here’s what to check for.

Is it ex gratia?

First thing, you’ll want to know if what’s been paid to you is in fact ex gratia and not a legal entitlement.

Per above comments, ex gratia means by favour.  

In other words, there’s no legal entitlement to the ex gratia payment. 

If someone is offering you an ex gratia payment but its really something they owe you because of law, then its not ex gratia. 

An example - an employer that has $10,000 outstanding wages but calls this ex gratia during settlement prompt these tips:

  • you don’t need to sign an agreement or deed to be paid something you are owed; 
  • the payment should not be called ex gratia; and 
  • you should get advice about the deed to see if you need to sign it and to check if the other terms are fair.

What to look for: 

  • time frame to pay the ex gratia payment to you 
  • any conditions you need to meet to get the ex gratia payment e.g. return company property etc.

Negotiating ex gratia payments

We know the starting point from above - there’s no legal obligation to pay an ex gratia payment.

So how much should you ask for if you are negotiating an ex gratia payment?

As a starting point, you might want to consider covering your losses or a missed opportunity cost. 

Your losses 

Your losses could be payments you would have been paid right up to the point of negotiation; or

Payments lost up to the negotiation date and the time it will take you to find a similar opportunity. 

Employee Example 

A classic example is a worker that has been dismissed from an employer and is considering unfair dismissal action.

As an ex gratia payment, the employee could seek an ex gratia payment fo rthe time it will take them to find another job. 

Ex gratia or formal proceedings?

The big motivator for formal legal proceedings is usually where someone feels they have suffered injustice even right up to the negotiation process (if any). 

The benefits of settling and accepting an ex gratia payment include saving the time and cost of running legal proceedings, protecting a business or personal reputation and quality of life.  

So when should you commence formal legal proceedings?

Legal advice is a good idea to determine the strength of your case before even considering formal legal proceedings.

You'll also want to know the likelihood of success before you start any legal action against someone.

Below are some guidelines for commencing proceedings 

If you are negotiating a settlement and the other party is not making you an offer that covers your actual or projected loss you may consider formal legal proceedings.

But, you may want to consider the cost of running the proceedings against the likely financial gain.  

So, this means, you are running a cost-benefit analysis to see if its worth legal proceedings or not. 

Do you have any questions or experiences to share about ex gratia payments? feel free to share them in the comments below.


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About the Author

Vivian Michael is a lawyer and founder of Michael Law Group. Vivian's mission is to make quality business legal services accessible to Australian businesses that would otherwise DIY, rely on legacy contracts or go without.

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