South Africa: Mutual Separation Agreements: Caveat Subscriptor

Last Updated: 26 April 2016
Article by Henry Rossouw and Faryn Nana

Most Read Contributor in South Africa, September 2016

In many cases, and for various reasons, an employer and employee will choose to conclude a mutual separation agreement, bringing to an end an employment relationship by way of mutual consent, rather than unilateral termination.

Both employers and employees should take note of the conclusions in the recent case of Gbenga-Oluwatoye v Reckitt Benckiser South Africa (Pty) Limited and Another (JA 95-2014) [2016] ZALAC 2 (3 February 2016), in which the Labour Appeal Court considered the validity of mutual separation agreements in South Africa and re-affirmed the law in this regard.

In this case, Muyiwa Gbenga-Oluwatoye ("the employee"), a Nigerian citizen, was in the employ of Unilever in Dubai. In January 2013, he was approached by a recruitment agent with an opportunity in South Africa, which he did not take up. In February 2013, he left Unilever and took up employment at Standard Chartered Bank in Dubai. Shortly thereafter, the employee contacted the aforementioned recruitment agent to inquire about the opportunity that he was previously offered. In the curriculum vitae he provided to Reckitt Benckiser ("RB"), the employee stated that he was still in the employ of Unilever and his remuneration package was negotiated on this basis. This resulted in RB paying the employee a US$40 000 signing-on bonus as compensation for Unilever shares/share options that he purportedly held and would forgo due to the termination of his employment with Unilever.

RB soon discovered that the employee had not been in Unilever's employ at the time he was hired and he was called to a disciplinary hearing which resulted in his summary dismissal due to the misrepresentations he had made.

However, the employee successfully negotiated a "soft exit" with RB, in terms of which he would repay the US$40 000 bonus to the company, while still receiving his housing allowance and having his work permit extended for some months. This resulted in a separation agreement being concluded between the parties, which was signed and was "in full and final settlement of all claims of whatsoever nature and however arising between the parties". The employee also acknowledged that he accepted the agreement "without duress or undue influence" and that he "voluntarily and unconditionally" waived his right to any notice pay and "his right to approach any [r]elevant [a]uthority including the [Commission for Conciliation, Mediation and Arbitration] and/or the Labour Court or any other [c]ourt for any relief against [RB] emanating from his [e]mployment and/or his resignation and/or this [a]greement". He also signed an acknowledgment of debt in terms of the US$40 000 repayment.

Despite this, the employee approached the Labour Court on an urgent basis, alleging, among other things, that he was coerced into signing the separation agreement against his will and under duress, and that the terms of the agreement restricted his constitutional right to seek judicial address and was therefore against public policy and invalid ab initio.

The Labour Court found that the separation agreement constituted a valid compromise and dismissed the urgent application. Dissatisfied with this outcome, the employee took the matter on appeal to the Labour Appeal Court, which held that a separation agreement should be treated in law in the same manner as any other agreement between employer and employee. The court then went on to confirm that a contract may be vitiated by duress where "intimidation or improper pressure renders the consent of the party subjected to duress no true consent". The burden of proving such duress rests with the party raising it and the court held that, on the evidence before it, the Labour Court was correct in its refusal to declare the separation agreement invalid on the grounds of duress.

Turning to the employee's argument that the agreement was unconstitutional, the court found that there was no violation of section 34 of the Constitution (the right of access to the courts), as the employee's bargaining power (as a senior, managerial employee) was of such a nature that he fully understood the consequences of the contractual limitations contained in the separation agreement. The court also pointed out that constitutional rights may indeed be limited, as long as any such limitation is reasonable and that "full and final settlement" clauses such as this, which provided finality to a dispute, were commonplace and were not unlawful or contrary to public policy.

Finally, looking at the language and contextual framing of the agreement in question, the court concluded that the intentions of the parties were clear, the agreement itself was unambiguous and, once it was found that the agreement was a valid compromise, it "overtook" any other contractual entitlement that the employee might have had. The Labour Appeal Court therefore agreed with the Labour Court and dismissed the employee's appeal.

This judgment is important for both employers and employees. For employers, it illustrates that caution still needs to be exercised once a separation agreement has been concluded, as there are certain circumstances (duress or undue influence, for example) in terms of which such an agreement can be set aside. For employees, this case reinforces the fact that separation agreements, just like any other agreement between employer and employee, should not be entered into lightly and, as long as they are validly concluded, their provisions generally remain binding and enforceable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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