Hilary Muza 
The recently introduced Labour Amendment Act has brought about measures that may make it more difficult to summarily terminate contracts of employment.
I anticipate that this will increase employers’ willingness to mutually terminate contracts instead of going through the drudgery of disciplinary proceedings, if it can be avoided. In this week’s article, I will explore what it means to mutually terminate a contract of employment and show how both employers and employees stand to benefit from adopting this approach.
Mutual termination of contract is one of the ways in which the relationship between an employer and an employee can be lawfully ended. It is one of the options given to employers who wish to terminate contracts on notice in terms of section 12 (4) of the Labour Act. The Act states that “no employer shall terminate the contract on notice unless… the employer and employee agree to mutually agree in writing to the termination of the contract.” The National Employment Code published in Statutory Instrument 15 of 2006 similarly says in clause 5(c) that, “no employer shall terminate the contract of employment with an employee unless — the employer and employee mutually agree in writing to the termination of the contract.”
What is clear from the wording of the legislation is that mutual termination of contracts is in itself a separate contract between the parties. It comes with terms and conditions that become binding on both the parties and their express consent to these terms and conditions is what will be looked to when assessing the nature of their relationship. It is wise to ensure that the terms of the mutual termination are crystal clear. It must also be pointed out that an agreement to mutually terminate must always be in writing. This means that a verbal mutual termination does not meet the thresholds that is set out in the law. In other words, a verbal mutual termination of contract can be said to be invalid.
This is because consent is the foundational building block of mutual termination agreements. Where the element of consent can be put into doubt for any reason, including fraud and misrepresentation, then the validity of the mutual termination agreement is also put into doubt.
Given that both parties must consent to their agreement to mutually terminate, mutual termination must be understood as being separate and distinct from other methods of termination such as retrenchment. So, an employee cannot agree to mutually terminate the contract of employment and then allege that they were unfairly dismissed. In the South African case of Ferguson v Basil Read (Pty) Ltd, an employee alleged that he had been unlawfully dismissed after having signed a contract to mutually terminate employment. The court made the determination that having voluntarily entered into the mutual termination, the employee could not then turn around and say that he was dismissed.
In Gauntlet Security Services (Pvt) Ltd. v Hlabangani, the Supreme Court stated that it was irrational for an employee to mutually terminate an employment contract and then turn around and say that they were dismissed. In that case, the respondent had worked as a security guard for the company and the parties agreed to mutually terminate the contract of employment. The respondent was accordingly paid terminal benefits in terms of the agreement to mutually terminate. He however, turned around and said that he was unlawfully dismissed. The court said, “he is entirely to blame for having misled Gauntlet Security into believing what he intended it to believe, that is to say, that the contract of employment was being terminated by mutual agreement.” This finding supports what I mentioned above regarding consent being the foundation for any valid mutual termination agreement.
This position emphasises the point that mutual termination is just an alternative to the many forms of termination that are allowed under our law. In fact, mutual termination can be a useful tool for both employer and employee in that if strategically deployed, it stands to benefit both parties. For instance, it is possible to negotiate benefits and gratuities in a termination agreement, depending on the circumstances of the employment relationship, the sector that the employer operates in etc. This might see the employee ending up in a better situation then he or she would have been had the contract simply been terminated.
After all it is open to every employer to give employees gratuities that they are not necessarily mandated to do in terms of the law. The point here is that mutual termination, at least from the employee’s perspective, can be taken to be a tool to use in negotiating a beneficial end to the employment relationship.
Mutual termination v disciplinary
proceedings
When deciding whether to mutually terminate or conduct disciplinary proceedings, two questions must be answered.
• First, is there enough evidence against the employee to warrant dismissal?
• Second, is the employer willing to spend time and resources amassing proof against the employee, arrange a hearing, terminate, and deal with any subsequent appeals? If the answer to these questions is yes, then the way to go is to conduct disciplinary proceedings against the employee. If the answer is no, then it is wise to negotiate a mutual termination and present the employee with their package to sweeten the mutual termination deal. It must not be forgotten that terminal benefits are payable upon termination of an employment contract. This includes mutual termination. As always, the employee must be paid terminal benefits including cash in lieu of notice and other statutory benefits.
This has been a brief sypnosis of how mutual termination of contracts works. Mutual termination is indeed a useful thing to have in the employer’s toolkit when dealing with employment relations with employees. However, both employers and employees should seek legal advice whenever contemplating a mutual termination agreement.
Muza is a duly admitted lawyer with expertise in commercial litigation and arbitration. He writes in his personal capacity. For feedback, email him at hilarykmuza@gmail.com.
