Golden Handshake Explained: What Australian Businesses Need To Know About Employee Exit Agreements

Senior departures can be sensitive. Whether you’re parting ways with a long-serving manager or negotiating an executive exit, handling things properly protects your business and shows respect to the person leaving.

That’s where a “golden handshake” often comes in. In Australia, these exit packages can help you reach a clean, fair and legally sound separation - but only if they’re structured carefully.

In this guide, we’ll cover what a golden handshake is, when you might offer one, the key legal issues to watch, and how to structure a practical exit agreement that balances people and risk. By the end, you’ll understand your options and obligations - and when it’s worth getting expert help.

What Is A Golden Handshake?

A golden handshake is a discretionary payment or bundle of benefits offered to an employee as part of their departure from your business. It’s commonly used for executives or other key staff, and it sits on top of any minimum entitlements the employee already has under Australian law.

Typical components can include:

• A lump sum cash amount (in addition to any redundancy or severance the law requires)
• Acceleration or vesting of equity (shares, options or RSUs)
• Continuation of certain benefits for a set period (for example, vehicle use or health cover)
• Payment in lieu of all or part of the notice period
• Other agreed incentives, such as a pro‑rated bonus

In exchange, employers usually seek legal certainty - for example, a separation deed with confidentiality, non‑disparagement and tailored post‑employment restraints, along with a release of claims (with appropriate carve‑outs). The aim is a smooth transition and reduced dispute risk for everyone.

Why Do Businesses Offer Golden Handshakes?

Golden handshakes can attract headlines, but for many SMEs they’re a practical tool to wrap up employment on clear terms. Common reasons you might negotiate an enhanced exit include:

• Smoother transitions: Agree a timeline, handover and final statements to minimise disruption.
• Business protection: Pair a payment with confidentiality, IP protection and reasonable restraints on competition or solicitation.
• Reputation management: Sensitive exits stay professional and out of the public eye.
• Encouraging voluntary exits: During restructures, an extra payment can help you realign roles without protracted disputes.
• Commercial certainty: Resolve ambiguous or disputed items (such as discretionary bonuses) with a clean, final settlement.

The key is ensuring any additional benefits are clearly documented and do not replace the minimum entitlements required by law.

How Do Golden Handshakes Work In Australia?

In Australia, the commercial deal is typically recorded in a formal exit document - most often a deed (rather than a simple contract). You’ll commonly see this described as a deed of release, deed of settlement or separation deed.

Core elements to cover

• The total payment breakdown (salary to last day, leave accruals, redundancy if applicable, any ex‑gratia or bonus, superannuation if payable on specific components, and tax treatment)
• How notice will be handled (worked, garden leave, or payment in lieu)
• Handover steps, return of property and cut‑off dates for system access
• Confidentiality, IP ownership confirmations and non‑disparagement
• Any post‑employment restraints (scope, timing and geography must be reasonable)
• Mutual releases of claims (with proper carve‑outs for rights that can’t be waived)
• Agreed messaging if public or internal communications are expected
• Timing of payments and conditions precedent (for example, signing and returning the deed)

It’s common to pair the main deed with supporting documents as needed, such as a focused Non‑Disclosure Agreement for ongoing confidentiality with investors or acquirers.

Key Legal Considerations (And Common Misconceptions)

Golden handshakes aren’t defined in a single statute, but they sit within a clear legal framework. Here are the main issues to get right.

1) Minimum Entitlements Still Apply

National Employment Standards (NES), modern awards and any enterprise agreement set the floor for notice, leave accruals and - where applicable - redundancy pay. A golden handshake is on top of these rights, not a substitute. If redundancy is in play, double‑check any award rules and sense‑check the amount using a practical guide like our redundancy calculator guide.

2) Tax Treatment Of Termination Payments

Additional exit payments may fall within employment termination payment (ETP) rules and be taxed differently from ordinary earnings. Factors like age, service, type of payment and caps can change the outcome. Because tax settings are complex and change over time, it’s important the business and employee each obtain independent tax advice before finalising figures. This article is general information - not tax advice.

3) Releases Have Limits

Well‑drafted deeds can settle most employment‑related claims. However, you cannot contract out of certain statutory rights. For example, a release should not prevent a person from making protected disclosures, cooperating with a regulator, accessing workers’ compensation, or enforcing non‑excludable minimum entitlements. Ensure you include sensible carve‑outs so the release is effective and fair.

4) Restraints Must Be Reasonable

Post‑employment restraints (non‑compete, non‑solicitation, non‑dealing) need to be no more than is reasonably necessary to protect legitimate business interests. Over‑broad restraints are hard to enforce. In practice, many deeds use cascading clauses (graduated time periods and geographies) to improve enforceability and give a court options to “read down” the restriction if required.

5) Confidentiality And Non‑Disparagement

These clauses are common, but they also need sensible exceptions - for example, to permit truthful statements to regulators or required disclosures. Include mutual non‑disparagement where appropriate to keep everyone aligned.

6) Process And Fairness

How you handle the exit matters. Heavy‑handed tactics can increase risk of adverse action or unfair dismissal allegations. Provide a reasonable review period and encourage independent legal advice - it supports fairness and helps the deed stick.

What Should Your Exit Agreement Include?

Every exit is different, but a robust deed will usually address the points below in clear, practical language.

• Payments: Itemise all components (wages to termination date, leave payouts, redundancy if applicable, any ex‑gratia, superannuation where required) and payment timing.
• Notice And Handover: Confirm whether the employee will work notice, be placed on garden leave, or receive payment in lieu, plus handover tasks and property return.
• Confidentiality And IP: Reinforce confidentiality obligations and ensure your business owns any intellectual property created in employment.
• Restraints: Tailored non‑compete/non‑solicit terms with reasonable scope, time and geography.
• Non‑Disparagement: Mutual where appropriate, with carve‑outs for legal or regulatory disclosures.
• Release Of Claims: A carefully drafted mutual release with necessary exceptions so it is enforceable.
• Tax: High‑level tax treatment statement and a note that each party is responsible for their own advice and liabilities.
• Practicalities: Company property return, system access cut‑off, agreed statements and references, and dispute resolution mechanics.

For added certainty, many businesses prefer to document exits as a deed rather than a simple agreement. Our guide to a Deed of Release and Settlement explains why deeds are the preferred approach for finalising employment claims.

Step‑By‑Step: How To Offer A Golden Handshake

Step 1: Assess The Situation

Consider the role, sensitivity of information, potential dispute risks, and commercial goals. Decide whether an enhanced exit is warranted and what you need in return (for example, restraints, a longer handover or a clean release).

Step 2: Confirm Minimum Entitlements

Calculate statutory items first - wages to the last day, leave, notice and any redundancy. This avoids any perception you are “buying out” basic rights. If redundancy applies, sense‑check calculations against internal policies and relevant instruments.

Step 3: Decide Any Discretionary Components

Consider whether an ex‑gratia amount is appropriate to reach commercial certainty. If you do include a discretionary amount, record it clearly as an additional payment. For context around discretionary extras, see our overview of ex gratia payments.

Step 4: Draft The Exit Documents

Prepare a tailored deed that reflects the commercial deal and your risk profile. If you don’t have in‑house templates, getting help from a contract lawyer can save time and reduce enforceability issues.

Step 5: Allow A Review Period

Give the employee time to consider the deed and obtain independent advice. This demonstrates good faith and helps prevent later claims of duress.

Step 6: Sign And Complete Handover

When the deed is signed, process payments promptly, revoke or limit access, and complete the transition plan. Keep signed copies and records securely.

Optional: Supporting Documents

Depending on the situation, you might also use a focused NDA for ongoing discussions with investors or buyers, or a Deed of Termination where you need to formalise the end of an employment contract alongside the settlement terms.

Employment Law Traps To Avoid

• Contracting out of minimum standards: NES and award entitlements can’t be waived. Your payment structure must sit on top of these rights.
• Vague promises or emails: Ambiguity invites disputes. Put the complete deal in a clear deed with a full payment breakdown.
• Over‑broad restraints: If they go beyond what’s reasonably necessary, you risk non‑enforcement. Calibrate scope, time and geography.
• Missing carve‑outs in releases: Preserve rights to report to regulators, claim workers’ comp, or enforce non‑excludable entitlements.
• Tax missteps: ETP and other tax rules are technical. Encourage both sides to get tax advice before signing.
• Process risks: Rushing or pressuring can fuel unfair dismissal or adverse action allegations. Build in time for review and advice.
• Loose ends: Don’t forget system access, property returns, IP assignments and agreed statements to reduce post‑exit friction.

What Legal Documents Will You Usually Need?

• Deed Of Release/Settlement: Finalises entitlements and releases most claims with appropriate carve‑outs. See a practical overview in our guide to a Deed of Release and Settlement.
• Deed Of Termination: Formally ends the employment relationship and sets out key obligations alongside the settlement terms: Deed of Termination.
• Payment Clauses For Notice: Where notice is not worked, include clear terms dealing with payment in lieu.
• Non‑Disclosure Agreement (NDA): Useful if the former employee will assist with post‑exit projects or a sale process: NDA.
• Separation/Employment Certificates: In some cases, third parties may request evidence of separation; ensure internal records align with any separation certificate you issue.

Not every exit will require each document - the right mix depends on seniority, risk and context. When stakes are higher, it’s worth getting a contract lawyer to draft or review the deed so your business is properly protected.

How Is A Golden Handshake Different From Redundancy Pay?

Redundancy pay (where applicable) is a statutory entitlement calculated largely by service length and set by the Fair Work Act and any applicable industrial instrument. A golden handshake is discretionary - it’s an extra commercial payment to help both parties reach a clean, final deal.

In short: redundancy is the legal minimum in certain circumstances; the golden handshake is the negotiated “something extra” to secure business protections, finish well and move on with certainty.

Key Takeaways

• A golden handshake is a discretionary payment or benefit added to, not replacing, minimum entitlements like notice, leave and redundancy.
• Use a tailored deed (not a template) to lock in payments, confidentiality, IP protections, reasonable restraints and a clear release with carve‑outs.
• Restraints must be reasonable, and releases can’t waive certain statutory rights or stop regulatory disclosures - draft with care.
• Tax settings for termination payments can be complex; each party should get independent tax advice before signing.
• Process matters: allow time for review and encourage independent legal advice to support enforceability and fairness.
• For sensitive or high‑stakes exits, engaging a contract lawyer to prepare the deed reduces risk and helps you achieve a smooth, professional transition.

If you’d like a consultation about structuring golden handshakes and employee exit agreements in Australia, reach out to us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.