Mutual termination of employment in terms of a settlement agreement

September 5th, 2016, Published in Articles: EE Publishers, Articles: Vector


Stephen Khola

Stephen Khola

Clauses in employment agreements in terms of which the services of the employee can be terminated with certain notice periods are quite common. As we know, this is no simple matter and the Labour Relations Act requires a due process to be followed which could, for instance, be a disciplinary or a retrenchment process, among others.

I often use settlement agreements in terms of which a mutual agreement is reached to terminate employment, regardless of the reasons for termination. I also use settlement agreements following a due process to settle the matter in an effort to avoid disputes afterwards.

To date, I have yet to be faced with a case where the CCMA Commissioner actually decides to rule on the validity of a settlement agreement where the validity and/or enforceability of such an agreement is placed in dispute by the employee. This is a jurisdictional matter and, as the CCMA is a creature of statute which, in this present scenario, means that, as the legislation and rules which govern it do not include the CCMA’s jurisdiction to rule on the validity of a settlement agreement, it is normally a proverbial “cut and dry case” in favour of the employer.

If the employee disputes the validity of such an agreement, they should approach a civil court to set aside the agreement before approaching the CCMA. There is an exception in section 77 (3) of the Basic Conditions of Employment Act which we discuss with later.

I was, however, recently confronted with a case where the employee disputed the validity of a settlement agreement reached for the mutual termination of his employment.

I thought this would be a mere formality but was taken by surprise by the commissioner who was of the view that the CCMA did in fact have the jurisdiction to rule on the validity of the agreement. The Commissioner did not submit any authority for this view.

She did, however, say that she would have jurisdiction because the agreement was not reached under the auspices of the CCMA but between the parties outside the CCMA. In the end, it turned out to be a formality in favour of the employer but I believed this required some further investigation.

The case law is not clear enough as yet but in the matter of Schroeder and another vs. Pharmacare Ltd (Aspen Pharmacare) in 2015, the judge found that the Labour Court and the CCMA did not have the jurisdiction to determine the validity of such a settlement agreement.

The court is not empowered… to enquire into their validity. The court may determine whether an agreement induced by duress or misrepresentation ought to be set aside in the context, for example, of an alleged dismissal for a reason related to the employer’s operational requirements.”

The judge also remarked aside that a settlement agreement was not a preliminary point which would oust the jurisdiction of the CCMA. This means that the CCMA is not precluded from considering a settlement agreement when determining whether or not a dismissal exists. This in itself is a difficult concept to contend with as I interpret it to mean that the CCMA may consider a settlement agreement and, although it cannot set the agreement aside, it may still find that, regardless of a mutually-agreed upon settlement for the termination of employment, a dismissal still exists. Given the specific circumstances of a case by implication, it may also be an unfair dismissal.

Section 77 (3) of the Basic Conditions of Employment Act provides that:

The Labour Court has concurrent jurisdiction with the civil courts to hear and determine any matter concerning a contract of employment irrespective of whether any basic condition of employment constitutes a term of that contract.”

So, the question is whether the Labour Court will have the jurisdiction to rule on the validity of a settlement agreement reached for the mutual termination of an employment agreement in terms of a provision in the relevant employment agreement.

Let’s assume a scenario where the employee is guilty of misconduct and the employer dismisses the employee without following any process. The employer realises that he made a mistake and then negotiates a settlement agreement in terms of the Notice/Termination Clause in the employment agreement. In such a case, it may be problematic for the employer if a dispute is declared.

To sum up, and although I may personally not be in agreement with the remarks made in the Schroeder case, I believe that the following is important:

  • Use a due process when it comes to disciplinary steps and, if you wish, rather conclude a settlement agreement after the process was followed to avoid a tedious and time consuming dispute afterwards.
  • Avoid concluding settlement agreements based on any term in the employment agreement if the intention is to avoid, substitute or circumvent a disciplinary process. If the employer fails to follow a due process and realises the mistake before a dispute is declared, they should rather rectify the mistake by engaging in a disciplinary process even if it means that the employer will have to pay the employee’s salary for the days between the procedurally incorrect dismissal and the disciplinary hearing or enquiry. This also applies to retrenchment proceedings.

Stephen Khola, ECA national labour relations and HR director

Related Articles

  • South African Government COVID-19 Corona Virus Resource Portal
  • Ministerial determinations propose 13813 MW of new-build by IPPs, none by Eskom
  • Crunch time for South Africa’s national nuclear company, Necsa
  • Dealing with the elephant in the room that is Eskom…
  • Interview with Minerals & Energy Minister Gwede Mantashe