The Facts

The employee commenced employment with the employer on 18 April 2018 as a final level grader operator. In November 2020, the employer’s operator training manager approached the employee to discuss the company’s operational needs and the possibility of transferring the employee to the Northern Cape, where his skills were required. The employee declined the transfer because he did not want to be away from his family. According to the employer’s testimony, the employee asked to be retrenched, citing financial difficulties at home and a home construction project. The employee’s version differed. He claimed the employer told him he would be retrenched if he refused.

On 3 December 2020, the parties signed a document titled “Mutual Separation Agreement”, and the employee received severance pay of R181,541.75. He subsequently referred an unfair dismissal dispute to the Bargaining Council for the Civil Engineering Industry. The arbitrator found that the document was not a genuine mutual separation agreement but rather a retrenchment letter, and that the employer had failed to comply with section 189 of the LRA. The arbitrator ordered reinstatement. The Labour Court dismissed the employer’s review application, holding that the employer could not use a mutual separation agreement to circumvent section 189 procedures.

The law

The LAC identified two key legal principles. First, the question of whether a dismissal occurred is a jurisdictional issue that must be determined using the correctness test, not the reasonableness standard. As held in Johnson Uniform Solutions (Pty) Ltd v Brown and Others (DA10/2012) [2014] ZALCJHB 32 (13 February 2014), where legal or jurisdictional findings are challenged, the correctness standard applies. Second, the sanctity of contract principle requires that agreements freely and voluntarily concluded must be honoured. As the Supreme Court of Appeal held in Mohamed’s Leisure Holdings (Pty) Ltd v Southern Sun Hotels Interests (Pty) Ltd 2018 (2) SA 314 (SCA) parties are free to enter into contracts and their agreements shall be enforced when entered into freely and voluntarily.

For a valid contract to exist, each party must have an intention to be legally bound and the parties consent to the terms. Where these requirements are met, the agreement is valid and enforceable. Importantly, there is nothing in the LRA that precludes parties from concluding a mutual separation agreement even where operational requirements are being discussed.

The court’s application of the law

The LAC held that the Labour Court erred in applying the reasonableness test when it should have applied the correctness test. The threshold question was whether a dismissal occurred at all; a jurisdictional enquiry.

The LAC found that both parties had entered into and signed the mutual separation agreement voluntarily. The employee received his severance package as agreed and acknowledged acceptance of the terms in full and final settlement of all claims against the appellant. There was no finding that the employee was coerced into signing the agreement. The conclusion by the Labour Court that the employer had avoided section 189 processes was unfounded, as nothing prevents parties from entering into a mutual separation agreement at any time when operational requirements are discussed.

The LAC emphasised that section 189 governs dismissals for operational requirements, not consensual terminations. Where termination occurs by valid agreement, section 189 is not triggered because the employer has not dismissed the employee. The fact that operational requirements were discussed does not, in itself, transform a mutual separation into a retrenchment requiring compliance with section 189.

Findings and order

The LAC upheld the appeal and found that the mutual separation agreement was valid and enforceable. Since the agreement was valid, there was no dismissal, and the arbitrator had no jurisdiction to entertain the dispute. The LAC set aside the Labour Court’s judgment and substituted it with an order reviewing and setting aside the arbitration award. The court declared that the employer did not dismiss the employee.

Key takeaways

This judgment provides important clarity for employers and employees.

First, the existence of a valid mutual separation agreement means there is no dismissal, and the unfair dismissal regime is not engaged.

Second, parties are not precluded from concluding mutual separation agreements where operational requirements are under discussion. Such agreements remain a legitimate mechanism for ending employment relationships.

Third, where allegations of coercion or misrepresentation are made, the validity of the agreement will be scrutinised.

Fourth, employers should ensure that mutual separation agreements are clearly drafted, consensual, and signed voluntarily to withstand scrutiny.