A guide to ex gratia payments
Updated: 24 January 2022
What are ex gratia payments?
Ex gratia means ‘by favour'. This is when your employer, or any other entity, does not have an obligation to make a payment but they offer it anyway.
In this article we're focussing on an ex gratia payment in an employment relationship.
An Ex gratia payment can include bonuses, or superannuation or retirement payments as a sign of goodwill.
Usually an employer pays an ex gratia payment when employment ends but they can also occur while still employed.
Employers often offer a ex gratia payment to settle legal disputes you have with the company.
Ex gratia payments a voluntary payment and such a voluntary payment is usually made from a sense of social or moral obligation without admitting any legal liability.
When you may receive an ex gratia offer
An employer can make an ex gratia offer to solve a legal dispute with an employee. The motivation can be to avoid negative publicity when employment ends.
You may first see the words ‘ex gratia' used in an email or hear them in discussion to let you know there is an offer on the table.
The key message will be “that while we don't have to pay you anything, we are going to because we want you to sign something”. An ex gratia payment is not a legal requirement.
Is it really an ex gratia payment?
Ask yourself whether it is really an ex gratia payment or a legal entitlement.
Keep in mind that your employer is under no obligation to make an ex gratia payment, its usually a goodwill gesture. If they are offering an ex gratia payment in lieu of a sum they owe you, then it is not an ex gratia payment.
For example, an employer may owe you $10,000 in outstanding wages but offer an ex gratia payment to settle the matter. It is not an ex gratia payment when your employer owes you wages.
You do not need to sign an agreement or deed to receive the wages or any other entitlement legally owed to you. When money is owed to you like wages, you have a valid legal claim, a claim that you can pursue via formal legal proceedings.
When you are not sure, get advice from an employment law expert about what your employer is asking you to sign. They will advise whether you need to sign it or not. A lawyer will also let you know if the terms set out in the document are fair.
What to look for in an ex gratia payment:
- Within what timeframe the other party will make the payment to you.
- The conditions of the ex gratia payment; for example, agreeing not to work for a competitor or non-disclosure of intellectual property.
Negotiating ex gratia payments
Keep in mind that your employer is under no obligation to pay an ex gratia payment when negotiating an amount and you are never legally obligated to accept an ex gratia payment. The best place to start is to consider an amount that covers your losses or a missed opportunity. How much you ask for depends on your situation.
A classic example is if your employer dismisses you and you want to take action for unfair dismissal. If your employer offers an ex gratia payment, you can consider asking for an amount that covers the time you have been without work and even the time it will take to find another job. It is wise to get advice about how much to ask for to make sure you ask for a fair amount.
Commencing legal proceedings
Commencing legal proceedings can be difficult when you do not understand the process.
Seek legal advice to gauge the strength of your case and the likelihood of success before taking steps to initiate formal legal proceedings.
The following tips can help you make a decision:
- When trying to negotiate a settlement and the other party is not making an adequate offer to cover your actual or projected losses, consider formal proceedings.
- Consider the cost of legal proceedings versus your financial gain. Complete a cost-benefit analysis or seek legal advice to see whether it is financially worth it or not.
Do you have any questions or experiences to share about ex gratia payments? Feel free to share them in the comments section or contact me directly for advice.
Hi Vivian – I have a letter from my employer dated 2010 detailing “preserving a termination payment (ex-gratia payment) of $xxx” and states I will be entitled to the payment “should my employment cease to continue at any time” once a deed of release is signed. There are no other terms or conditions detailed. Is this an enforceable undertaking? Are there any grounds on which my employer could withdraw or apply previously unknown and unspecificed conditions to the payment?
Regards,
Allan Webster