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Mutual Separation Agreements

28.05.2021
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Introduction

In my last article, I dealt with terminating of employment contracts due to misconduct and the applicable law and steps to follow. I also dealt with other options to terminate employment contracts without going through the prescribed disciplinary processes. One particular method I briefly made mention of was the negotiation of a mutual separation agreement.

In this article we take an in depth look at the circumstances under which mutual separation agreements may be used and how they can be negotiated. We further take a closer look at the pros and cons of negotiating a mutual separation agreement both from an employer’s perspective as well from an employee’s perspective.

It’s a given that where an employee or an employer may avoid headaches, emotional strain and work disruptions, as well as excessive costs, a mutual separation will always be the go to solution for terminating employment agreements, particularly in contentious circumstances.

What is a mutual separation agreement?

There are varying definitions of mutual separation agreements from numerous practitioners and academics alike. In essence, Mutual separation agreements are legally binding terms and conditions of terminating an employment agreement. Think of it as a divorce settlement between an employee and an employer.

Where parties reach a point where their relationship has broken down for one reason or the other, they may decide to either have a messy divorce or an amicable separation. Where parties decide to separate amicably, they may negotiate the relevant terms of separation. Once consensus is reached between the parties, they sign a binding mutual separation agreement.

As such, a mutual separation agreement includes a waiver of rights by both parties to enable a “soft exit” of the employee. However, it often contains undertakings by the parties where the disclosure of certain, often disparaging, information will be prohibited. In that way the employee’s image is kept intact and the same applies to the employer’s image.

When can a mutual separation agreement be utilised?

As mentioned above, employment relationships come to an end due to various issues. This may be due to incompatibility, misconduct by an employee or intolerable conduct by the employer towards the employee (as situation forming the basis of a constructive dismissal).

Therefore, Mutual Separation Agreements can be entered into before or after a disciplinary enquiry where an employee has committed a misconduct.

Pros and Cons of a Mutual Separation Agreement

In my last article, I mentioned that some of the benefits of aMutual Separation Agreement for an employer include avoiding the often arduous disciplinary enquiry process. The upside to this is that your business operations will not be disrupted, and your remaining workforce will not be demoralised. Most importantly, you will get to maintain a positive company culture with your remaining employees.

Another great thing about Mutual Separation Agreements is that, if done properly, they provide you with a watertight and risk free termination.

As for the employee, this means that they get to avoid dismissal, and rather chose to sever ties with the company on “good terms”. Most importantly for employees, they get to avoid the stigma attached to a record of having been dismissed, particularly when they have to still look for employment elsewhere.

As briefly stated in my previous article, the circumstances and preceding negotiations to a mutual separation agreement must be handled correctly. This is due to the fact that if mishandled, the danger is that if the negotiations fall through and you subsequently dismiss the employee, they may allege that you had already made up your mind to get rid of them. Typical examples of badly handled mutual separation agreements are where the employer unlawfully coerces the employee to sign the agreement. If an employee can prove that he or she was forced or undue pressure was exerted on them to sign, such that the signing was involuntary, the agreement may be set aside.

For employees, whilst it may be great that you leave your employer on a “good note” and you retain a “good record”, you however will not be able to claim UIF benefits if you sign a mutual separation agreement.

Therefore, it is imperative that you handle the negotiations adequately, or if you are not sure how to proceed, you obtain the help of a labour lawyer or labour consultant.

Conclusion

Mutual Separation agreements are contracts in the true sense of the word where parties make undertakings, and they are legally bound to such undertakings. It is therefore important to understand the binding nature of these agreements because once you sign one, it may be too late especially for employees, to renegotiate the terms.

As a method of avoiding the onerous and often costly and disruptive disciplinary processes, a mutual separation agreement is a winner. However, extreme caution must be taken when handling this method of terminating an employee’s contract.

Whilst there are a few cons to entering into mutual separation agreements for both employees and employers, my view is that their benefits do outweigh the cons. Bearing in mind the significant reduction of the CCMA’s budget, it may be worthwhile for employees and employers to resolve disputes on their own. In that respect, mutual separation agreements may be the next best thing. If you are faced with a dilemma on how to amicably terminate an employment relationship, before you pull out the guns, consider proposing a mutual separation agreement – It may be worth your while. However, if you are not exactly sure how to go about proposing a mutual separation, it may be helpful to have a labour lawyer or labour specialist by your side.

Sudden Mutsengi – 28 May 2021

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