Mutually agreed termination in the context of retrenchments
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.
Background of the Dispute
The background of this matter involves an employee who was employed as a Final Level Grader. He 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’. However, 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.
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. 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 following points:
- The agreement concluded between the parties was ‘more of a retrenchment document’ although referred to as a ‘mutual separation agreement’.
- 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.
- Because the employee was misled, the parties were not ad idem as to the terms of the agreement, and thus, the mutual separation agreement should be ignored.
Case Comparison Summary
| Feature | Case Detail |
|---|---|
| Agreement Type | Termed a 'mutual separation agreement' but functioned as a 'retrenchment document'. |
| Employee Claim | Misrepresentation, duress, and being misled into signing. |
| Legal Requirement | Compliance with Section 189 of the Labour Relations Act (LRA). |
| Court Outcome | Dismissal found both procedurally and substantively unfair; review application failed. |
Considerations for Employers
It does emphasise the importance of how and when an agreed termination is raised as an option in a retrenchment process. Ultimately, the Court held that WHBO was not entitled to use the mutual separation agreement to circumvent the statutory consultation process. 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. Furthermore, the employer was 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.