Mutual separation agreements are valid and binding

09 Jan 2018

In Gbenga-Oluwatoye v Reckitt Benckiser South Africa (Pty) Limited and Another (2016) 37 ILJ 2723 (CC), the Constitutional Court (“the CC”) considered the validity of a mutual separation agreement and re-affirmed that such agreements are lawful, even if they waive an employee’s right to seek judicial redress through the Commission for Conciliation, Mediation and Arbitration (“the CCMA”) and the Courts.

In this case, the employee was employed by Unilever in Dubai. In January 2013 he was approached by a recruitment agent with an opportunity to work in South Africa, which he declined one month later. He then left Unilever and took up employment at Standard Chartered Bank also in Dubai. Shortly after commencing his employment at Standard Chartered Bank, he contacted the recruitment agent to inquire about the opportunity that was offered to him previously. This opportunity was with Reckitt Benckiser. After reconsidering the offer, an interview was arranged with Reckitt Benckiser. At the interview, and in his curriculum vitae, he stated that he was still employed by Unilever, when in truth he was employed by Standard Chartered Bank.

Based on this information, Reckitt Benckiser negotiated a remuneration package, which included a US$40 000 sign-on bonus, a housing allowance and an extended work permit. The employee commenced employment as Reckitt Benckiser’s Regional Human Resources Director in July 2013. However, in early 2014, when Reckitt Benckiser discovered that the employee was not in fact employed by Unilever at the time that he had represented, he was called to a disciplinary hearing and dismissed for his material misrepresentation. The employee then requested a ‘softer exit’ and Reckitt Benckiser agreed. The employee entered into a separation agreement with Reckitt Benckiser in full and final settlement of any claims that the parties may have against each other. In the agreement, the employee acknowledged and accepted that the termination of his employment was without duress or undue influence, and that he had voluntarily and unconditionally waived his right to approach the CCMA and any other Court for relief.

Initially the employee applied directly to the CC, but the CC dismissed his application, holding that the matter was not in the public interest. He then approached the Labour Court (“the LC”) on an urgent basis, arguing that he was coerced into signing the separation agreement against his will and was 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 from the outset. However, the LC found that his claim of duress was not supported by the facts and that the separation agreement was a valid compromise since the circumstances were created by his own misrepresentation. The LC dismissed his application.

The employee then took the matter on appeal to the Labour Appeal Court (“the LAC”), which held that the separation agreement should, in law, be treated in the same manner as any other agreement between an employer and employee. The LAC went on to confirm that a contract is invalid when it is entered into under duress, where intimidation or improper pressure renders the employee’s consent not true, and therefore the burden of proving duress would rest on the applicant. However, based on the evidence submitted, the LAC agreed with the LC’s decision and dismissed the application with costs.

The employee then appealed further to the CC. The issue before the CC was whether the full and final settlement limited his constitutional right to seek judicial redress in the CCMA and the Courts. The CC found that there was no violation of his constitutional right of access to Courts because, as a senior manager the employee had a full understanding of the consequences of the agreed waiver and allowed him equal bargaining power. In applying the seminal case of Barkhuizen v Napier 2007 (5) SA 323 (CC), the CC held that there was nothing to indicate that the employee had unequal bargaining power when taking into account his position and his level of knowledge and understanding of the contract. The CC further held that when determining the lawfulness of the waiver, constitutional rights may be limited to the extent that such limitation is reasonable. Full and final settlement clauses, which provide for the finality of a dispute are commonplace and lawful and not contrary to public policy. The CC concluded that the intentions of the parties were clear, since the employee agreed to part ways with his employer on final terms. The CC held that the agreement itself was unambiguous and that a valid compromise took precedence over any other contractual entitlement that the employee could have had.

The Court dismissed the application for leave to appeal with costs.

See also: Mutual separation agreements: Caveat subscriptor

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)