A recent decision by the Labour Court raises some important issues concerning the conclusion of mutually agreed terminations in the context of retrenchment proceedings.

In the case of WBHO Construction Proprietary Limited v Masenye N.O. and Others, the judge found that the arbitrator’s decision to, effectively, ignore a mutual separation agreement concluded between the parties, and find that the employee had been unfairly retrenched, was reasonable, and dismissed the application for review.

We have a few concerns with the judgment, but it does emphasise the importance of how and when an agreed termination is raised as an option in a retrenchment process.  

Background

The employee, who was employed as a Final Level Grader, was approached by a representative of WHBO Construction (WHBO) concerning its ‘operational requirements’. During this discussion, it appears that the employee was asked whether he would transfer to the Northern Cape, where the company needed his services, but he refused. Following that discussion, the parties concluded what was termed a ‘mutual separation agreement’.

The terms of that agreement reflected that, following recent consultations between the parties, the employee was to be retrenched and would receive a severance package. In terms of the agreement, the employee acknowledged and accepted ‘the retrenchment in full and final settlement of all or any claims that I as the employee may have’.  

The employee subsequently referred an unfair dismissal dispute to the Bargaining Council for the Civil Engineering Industry (BCCEI) and argued that he had been misled into signing the agreement and that it was signed under misrepresentation and duress.

At the BCCEI, the arbitrator found that no retrenchment process had been followed, that the employee had been ‘pushed or dismissed’ and that there was no reason to terminate the employee’s services. Accordingly, the employee’s dismissal was found to be both procedurally and substantively unfair and the employee was awarded reinstatement and/ or maximum compensation.

WHBO took the matter on review to the Labour Court.

Findings of the Labour Court

On review, the Labour Court found that there was no evidence before the arbitrator to suggest that a retrenchment procedure in line with section 189 of the Labour Relations Act, 1995 (LRA) was followed and that, in the absence of compliance with the procedure set out in section 189, the arbitrator correctly found that the employee was pushed or dismissed.

The Court placed great emphasis on the fact that, although referred to as a ‘mutual separation agreement’, the agreement concluded between the parties was ‘more of a retrenchment document’. In this regard, the judge found the employer intended to retrench the employee, but instead of complying with section 189, the employer chose a convenient way of circumventing the provisions by signing a retrenchment document disguised as a mutual separation agreement with the employee.

As for the validity of the agreement itself, the Court found that, based on the employee’s argument that he was misled and that there was a misrepresentation, the parties were not ad idem as to the terms of the agreement, and thus, the mutual separation agreement should be ignored. In particular, the Court held that, while the employer presented a retrenchment document (ie that had the language of a retrenchment) to the employee, the document was signed as a mutual separation and, when the employee signed the mutual separation agreement, his intention was not to be retrenched.

Ultimately, the Court held that WHBO was not entitled to use the mutual separation agreement to circumvent the statutory consultation process and that, once it had a discussion with the employee concerning its operational requirements, the employer was obliged to follow the procedure in section 189 of the LRA. Thus, the arbitrator’s decision that the dismissal was unfair, because no proper procedure was followed, was one that a reasonable decision-maker would have reached.

WHBO’s review application failed. It was also ordered to pay the employee’s costs on the basis that the employer chose to circumvent the retrenchment process in circumstances where it is an experienced construction company that knows what the process entails (the Court mentioned that WHBO had, in fact, previously retrenched the same employee in 2015 following the proper process).

Considerations for employers

It is not clear from the judgment whether the arbitrator considered the validity of the agreement at all, which is curious when one of the issues the Court was asked to decide was whether the arbitrator’s decision was irregular, given the existence of a mutual separation agreement.

No mention is made in the judgment regarding the evidence that supported the employee’s contention that he was misled or that he signed the agreement under duress. It is also not apparent from the judgment whether the employee was paid any amount in addition to what he was legally entitled to. 

One wonders whether the Court’s decision would have been different if the agreement had been styled a ‘voluntary retrenchment agreement’. Voluntary retrenchment agreements have been accepted by our courts as valid agreements that may be concluded in the context of retrenchment proceedings.

That is, in circumstances where an employee may be dismissed based on the employer’s operational requirements (ie retrenched), the parties may validly agree to terminate the employment relationship by mutual agreement by reason of the employer’s operational requirements. Such agreements are ordinarily concluded in full and final settlement of any disputes between the parties, and the employee will be paid a gratuity (ie an amount in addition to what they are entitled to under the contract of employment and the Basic Conditions of Employment Act) in return for waiving their rights to bring any claims against the employer. 

Such agreements are beneficial for the employee, as the severance package and gratuity will receive more favourable tax treatment; and they are beneficial to the employer because it concludes the consultation process and ensures finality.

With this in mind, and considering the context in which the agreement was concluded in this case (ie after a discussion about the employer’s operational requirements), and the terms of the agreement itself (which referred to the employee’s ‘retrenchment’ and a ‘severance package’), it is not clear why the employee’s intention would not be to be retrenched.

Nevertheless, this case illustrates why it is important for employers to be cautious when concluding agreements with employees in the context of retrenchments.

Where an employer, faced with operational requirements necessitating retrenchments, seeks to terminate an employee’s employment by mutual agreement, by way of a voluntary retrenchment agreement, it is advisable to commence the section 189 consultation process first. This would be done by issuing the section 189(3) letter and then discussing the possibility of a voluntary retrenchment as part of the consultation process and as an alternative to a ‘forced’ retrenchment.

Once an employee agrees to this alternative, no further consultation meetings would be necessary. The agreement that is concluded with the employee should then clearly indicate that the employee has agreed and volunteered to be retrenched as an alternative to a potential forced retrenchment; that the employee is being paid an amount in addition to what they are legally entitled to (ie an enhanced severance package); and that, in view of the voluntary nature of the retrenchment and receipt of this enhanced package, the employee is precluded from instituting any claims against the employer and agrees to waive their rights in this regard. 

When concluded in these circumstances, and with these terms, a voluntary retrenchment agreement will have greater chances of being upheld as valid. 

Author

Chloë Loubser

Knowledge and Learning Lawyer

Talita Laubscher

Partner at Bowmans Attorneys