The importance of negotiating mutual separation agreements

 

THE IMPORTANCE OF NEGOTIATING MUTUAL SEPARATION AGREEMENTS

There are many instances where an employer would rather terminate a contract of employment through a settlement agreement than follow the procedures set out in the Labour Relations Act. These agreements are referred to as Mutual Separation Agreements. It is often a cost effective way that allows employers to forego disciplinary hearings, incapacity hearings as well as retrenchment processes. A Mutual Separation Agreement is effectively an agreement between the employer and employee setting out the terms and conditions of an employee’s termination of employment. In ideal circumstances, both parties are happy with the contents of these agreements, but this is not always the case.

Our Recent Matter:

One of our most recent clients was lucky in this regard. Our client was an employee that was under significant pressure from the employer to terminate her employment by way of a Mutual Separation Agreement. She was a committed employee and had no pending or previous disciplinary proceedings against her. The employer however wanted her employment terminated and fortunately our client recognised all the signs before it was too late. She consulted with us and we immediately intervened, ensuring that all her rights in terms of the law were protected. We negotiated with the employer on various terms of the Mutual Separation Agreement before the terms were finally agreed upon by both parties. The agreement has now been finalised and our client has received a significantly higher settlement than the original offer she received.

The Restrictive Nature of Mutual Separation Agreements 

Unfortunately, the parties are not always satisfied with the settlement agreement they have signed. We have recently consulted with various clients after they had signed a Mutual Separation Agreement with their employer. They have often settled for unfavourable terms believing that it was the only option they had. It is only at a later date that they realise that the employer received the better part of the bargain. Regrettably, in most instances it is too late for employees to renegotiate new settlement terms, especially when these agreements are made in full and final settlement of any and all future claims.

Where such an agreement is made in full and final settlement of all claims an employee may have against an employer, the employee is bound to the agreement and accordingly voluntarily waives his/her right to renegotiate the terms of settlement alternatively, the employee waives his/her right to approach the CCMA and / or the Labour Court and / or any other appropriate forum in order to seek relief. These clauses tend to be watertight and as such they provide a sense of security to employers.

The question then is can a Mutual Separation Agreement be set aside where an employee feels that they were treated unfairly? The simple answer is no. Mutual Separation Agreements shall continue to bind the employee irrespective of the regrets they may have regarding signing the agreement.

Mutual Separation Agreements Signed Under Duress 

The position may change however, where an employee signs the agreement under duress or undue influence. Duress or undue influence shall be present where a party experiences fear as this may have induced him to sign an agreement he might not have done on his own volition. This issue was dealt with in the case of Gbenga-Oluwatoye v Reckitt Benckiser South Africa (Pty) Limited and another [2016] JOL 36648 (CC).  In this matter, the employee requested a Mutual Separation in an attempt to avoid a dismissal. He accordingly signed the agreement in full and final settlement and thus he waived his right to approach any relevant authority in order to obtain relief against his employer. In terms of the agreement, he further accepted that he signed the agreement without duress or undue influence.

After signing the agreement however, the employee approached the Labour Court (“LC”) in an attempt to set the agreement aside stating that the agreement was signed under duress. The employee further alleged that the agreement was against public policy in that it restricted his constitutional right to seek judicial redress. The Labour Court dismissed the employee’s application stating that there were no facts to support his claim of duress.

The employee thereafter took the matter on appeal and approached the Labour Appeal Court (“LAC”). In considering the validity of the agreement, the LAC stated the following:

A contract may be vitiated by duress “where intimidation or improper pressure renders the consent of the party subjected to duress no true consent”. Compulsion may be exercised by way of physical force, or indirectly, by way of a threat of harm. In order to obtain an order setting aside a contract on the grounds of duress, actual violence or reasonable fear must be shown. The fear must be caused by the threat of some "considerable evil" to the person concerned, or to his, or her, family. The threat or intimidation must be unlawful, or contra bonos mores and the moral pressure used must have caused damage.”

The LAC went on to state that the burden of proving the duress rests on the party raising it which in this case would be the employee. In applying the aforementioned factors to this case, the LAC agreed with the LC and concluded that there was no duress.

The employee appealed further, this time to the Constitutional Court (“CC”). The CC dismissed the employee’s application and stated the following:

The applicant must be held bound. When parties settle an existing dispute in full and final settlement, none should be lightly released from an undertaking seriously and willingly embraced. This is particularly so if the agreement was, as here, for the benefit of the party seeking to escape the consequences of his own conduct. Even if the clause excluding access to courts were on its own invalid and unenforceable, the applicant must still fail. This is because he concluded an enforceable agreement that finally settled his dispute with his employer.”

Conclusion 

In light of the above, it is apparent that Mutual Separation Agreements are often final and binding in nature and accordingly employees are to tread carefully before concluding a Mutual Separation Agreement. Although it may be seen by an employee as a quick escape from challenging circumstances, employees must keep in mind the finality and consequences of the agreement. It is in these circumstances, that we recommend that legal advice be sought before concluding a Mutual Separation Agreement.

 

Saiendrie Moodley

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