A Mutual Separation Agreement (MSA), also known as a Voluntary Separation Agreement, is neither a dismissal nor a resignation. It’s a consensual and agreed-upon termination of employment, with negotiated terms of departure, between employee and employer.
While they are useful, an MSA has upsides and potential challenges for both parties. Therefore, everyone should know and understand the terms and conditions before signing one. As well as being very clear on why this is the chosen way to terminate employment.
What is a Mutual Separation Agreement?
According to Professor John Gogan in his book Workplace Law: “Just as the consensus of the parties brings the employment contract into existence, so too consensus may end a contract… [this] does not constitute a dismissal for the purposes of the common law or the LRA.”
Essentially, this means that an MSA is a mechanism by which employees and employers can part ways amicably. It should be based on fair negotiation and transparency from both parties. As well as comply with South African Labour Laws. Common terms in an MSA include: payments, withdrawal of pending and/or future litigation, confidentiality of proceedings and settlement, no negative communications and full and final settlement / no future or further claims.
8 Possible Reasons for an MSA
- An employer believes that the employee is unsuitable for the work required of them.
- Misconduct is suspected but can’t be definitively proven.
- To avoid the expense, time, and hassle of a disciplinary hearing.
- The employee is no longer capable of doing their job.
- Job requirements have changed and no longer match the employee’s skill set.
- Moving the employee to an alternative position is not possible.
- A more suitable employee has been found for the position.
- Operational requirements, also known as retrenchments.
What are the Benefits of a Mutual Separation Agreement
A primary benefit of an MSA is that it can be negotiated quickly and with little to no legal costs. This means that it is often the cheaper road for both employer and employee. For an employee, an MSA is a guaranteed settlement. Other legal avenues associated with termination of employment, such as the CCMA, do not guarantee financial compensation.
Another benefit of signing an MSA is the “without prejudice” clause. This gives both parties the space to discuss terms and conditions in a confidential setting without risking legal disputes. Practically, it means that more original options that enable a middle ground can be considered without fear of legal liabilities. For example, agreements that cannot be ordered by a court or arbitrator. Due to this aspect of an MSA, the relationship between employee and employer is more likely to be preserved after signing. Additionally, it is more likely that the reputations of all parties will be preserved during the termination process and afterwards.
Who Negotiates an MSA?
For the most part, an MSA is negotiated directly between the employer and employee. Both parties are allowed to consult with legal counsel during the process. It is usually advisable that ahead of presenting an MSA to their employee, a legal expert checks it to ensure adherence to labour laws. Once presented to an employee, the employee should seek legal advice on any points that they don’t understand or feel comfortable with.
How is an MSA Calculated?
The separation package that parties agree upon should be seen to be fair from both sides. The parties can ultimately agree on whatever terms, provided these terms are not illegal or unlawful. This means that the terms of the MSA could be early release during a notice period, payment of remuneration by the employer or something as simple as the exit narrative. Generally, if the terms include payment of remuneration, it should align with the minimum requirements in terms of section 40 of the Basic Conditions of Employment Act (BCEA). Specifically, employees party to an MSA should generally be paid for any remuneration earned, for notice pay and any accrued but unused annual leave.
Case law has held that MSAs that contain of waiver of rights to refer disputes should contain terms that are more favourable than those that the employee would exit employment if dismissed through a retrenchment, disciplinary or incapacity process. This is often referred to as the “sweetener”. Employers can be guided by what the employee may have been entitled to in terms of section 41 of the BCEA. This section regulates severance pay in the event of retrenchment. The BCEA sets out that severance pay should be calculated based on one week’s pay for every year of continuous employment.
How does an MSA Differ from other Terminations of Employment?
The biggest difference between an MSA and the termination or dismissal of an employee due to misconduct, incapacity and retrenchment is that it’s based on mutual consent. It’s a way of ending employment without a legal dispute at the time of termination or in the future. All mutual agreement terminations must be compliant with labour laws and regulations. Therefore, employers should seek legal counsel from a labour lawyer, such as Britney Theron, before the agreement is presented. This will better safeguard them from any potential legal disputes after the employment separation agreement has been signed. Note that a mutual separation agreement does not fall under constructive dismissal and if presented prematurely could hamper any corrective process thereafter.
The Impact of a Mutual Separation Agreement on Labour Court and CCMA Disputes
These are voluntary agreements and therefore impact what options an employee has post-termination. Specifically, an employee loses the right to take their previous employer to the CCMA or the Labour Court. However, an employee does have the right to challenge an MSA if it was signed under duress, coercion or in the event of a material misrepresentation. They may also challenge it if it violates the good morals of society. For example, if it contains provisions that require either of the parties to act unlawfully as a term of the agreement. In this event, if challenged, the MSA could be held to void ab initio meaning that it never came into effect and is therefore not enforceable.
Can You Collect UIF?
If you sign an MSA, you are not eligible to claim UIF. Section 16(1)(a) of the Unemployment Insurance Act 63 of 2001 (UIA) outlines the conditions under which someone qualifies to claim UIF. These are unemployment due to retrenchment, dismissal, insolvency, or fixed contract termination. The Labour Court has decreed it a criminal offence to try and claim UIF outside of these situations. It is also regarded as a criminal offence for any employee to try to influence their employer to change the reasons for employment termination to be able to claim unemployment benefits.
The MSA Advantages of Working with a Recruitment Agency
The Key Recruitment Group provides expert advice and guides employee-employer negotiations as part of our specialised services offered. Contact us today to discover how we can assist in making your HR processes easier and more efficient.