MUTUAL TERMINATION AGREEMENTS

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MUTUAL TERMINATION AGREEMENTS: CAN AN EMPLOYEE WAIVE THEIR RIGHT TO FURTHER RECOURSE AGAINST AN EMPLOYER?

A discussion of recent case law

By Venolan Naidoo (Senior Associate at Hayes Incorporated)

It has become a usual occurrence for an employer and employee to conclude what is termed a mutual termination agreement which would result in the termination of an employment relationship between the parties. The rationale to conclude a mutual termination agreement could be for a multitude of reasons. In practice, one of the reasons is that the parties reach an amicable resolution expeditiously and to obviate a perhaps protractive labour dispute. The overtures to conclude a mutual termination agreement may emanate from either an employer or an employee and usually arise prior to instituting a formal workplace/internal inquiry (whether it be disciplinary or incapacity related).

With discussion of recent case law, the article looks at the lawfulness and enforceability of an employee’s waiver of right to recourse (right to access to court) against their employer as a consequence to concluding a mutual termination agreement.

This article does not discuss the aspect of an employee’s right to review and set aside a mutual termination agreement (whether it is voidable) due to, among others, alleged duress, coercion, or undue influence. This would fall beyond the ambit of the article.

By way of illustration, an employee may be suspected of gross misconduct. As a result, an employer would have a right to convene an inquiry in order to determine the allegations, and if found guilty, may apply a sanction of dismissal. However, prior to undergoing such a process either party could propose that a mutual termination agreement be concluded. In practice, compensation is usually paid as part of the terms of the mutual termination agreement. Moreover, that an employee would waive his or her right to further recourse (right to access to court) against their employer. In this regard, a mutual termination agreement contemplates putting an end to any further labour dispute.

The question of whether such waiver of right(s) to further recourse (or right to access to court) is against public policy and therefore unlawful (unenforceable) was dealt with by the Constitutional Court of South Africa.
In the recent Constitutional Court [CC] Judgment of Gbenga-Oluwatoye v Reckitt Benckiser South Africa (Pty) Ltd and Another [2016] ZACC 33 (‘Reckitt’) this question was posed to the CC for determination. The facts of Reckitt are as follows, the applicant, Mr. Gbenga-Oluwatoye (former employee), concluded a settlement agreement i.e. mutual termination agreement following allegations of, which he admitted to, misrepresentations to his employer. Presumably, to avoid the longevity (among others) of an internal inquiry/labour dispute etc., the parties concluded a mutual termination agreement. One of the terms of the agreement was that the applicant waive all recourse to the Commission for Conciliation, Mediation & Arbitration (CCMA), Labour Court, or any relevant authority. Following the conclusion thereof, the applicant instituted proceedings in the Labour Court claiming (among others) that his waiver of right to further recourse, or rather, right to access to court, is against public policy (contra bonos mores). He was unsuccessful in the Labour Court and escalated his appeal all the way up to the CC for final determination. The Constitutional Court in Reckitt held the following:

• It confirmed the Labour Court’s finding that the bar to judicial redress i.e. waiver of further recourse in the mutual termination agreement amounted to nothing more than a means of giving effect to a final settlement agreement. It also cited the findings in Barkhuizen v Napier [2007] ZACC 5; 2007 (5) SA 323 (CC) regarding the test to determine whether a term(s) of a contract is contrary to public policy;

• It considered the parties position with respect to bargaining power and stated that “what is at issue here is a powerful consideration of public policy- the need for parties to settle their disputes on terms agreeable to them. That need arises in their own interests, and the interests of the public”;

• That the applicant “engaged in outright material deceit and misrepresentation” which he himself confessed that he had no defence, and thereafter, “entered into a final agreement to put a present dispute to bed” and did this “knowingly”. Further, that the applicant (in terms of the agreement) intended to part ways with Reckitt (his former employer) on final terms which also protected him from further action by them. Such a finality “included an agreement that the courts would not be involved”;

• In its final reasoning, it stated that “the public and indeed our courts have a powerful interest in enforcing agreements of this sort. 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”;

• The CC thus dismissed the applicant’s case with costs.

To conclude, the issue of whether an employee can waive his or her right to recourse (right to access to courts) against their employer has now been settled by the Constitutional Court as not being against public policy (bonos mores) and accordingly lawful. But of importance, an employer and employee who indeed elect to conclude a mutual termination agreement should clearly word such an intention to give full effect to the waiver, among the other terms of the agreement. To avoid any ambiguity or the partial enforcement thereof, it is recommended that appropriate legal advice is sought when considering the conclusion of a mutual termination agreement.

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