In recent times there has been a significant increase in the use of the so called “full and final settlement agreement”. Such mutual agreement enables the employer to terminate the service of an employee on bilateral grounds, subject to the employee waiving her rights to institute any legal proceedings against her employer at any dispute resolution forum. Such waiver by the employee is usually endorsed by the fact that the employer is willing to offer the employee a monetary amount in return for her mutual consent to terminate her service.


This could be a relatively straight forward process and in particular, where both parties from the onset has formulated the intention to terminate the employment relationship, can be a very satisfactory means to resolve the dispute. However, it becomes problematic when the said employee has no intention to terminate her service on such grounds, even if the proverbial carrot is dangled in front of her.


In such instance, some employers will initiate the mutual termination agreement as an alternative to disciplinary action or poor work performance proceedings, by affording the employee a decision between a “dismissal” or full and final settlement with monetary incentive. This in itself is justifiable, specifically if the process is transparent and truthful. However, on occasion, the employer might make a misrepresentation to the employee in an attempt to persuade her to accept the full and final settlement. This distortion of the reason for the agreement goes to the core of the settlement and could lead to serious financial implications for the employer.


In Goddard v Metcash Trading Africa (Pty) Ltd (2010) 2 BLLR 186 (LC) the employee was persuaded by a misrepresentation made by his employer to conclude a termination agreement on the basis that his position has become redundant. The Labour Court concluded that a misrepresentation by one party eradicates any form of consent and subsequently renders the settlement agreement void ab initio (invalid from the onset). The Court thus set aside the settlement agreement and ordered retrospective reinstatement.  


Therefore, employers should be cautious when engaging in potential mutual termination agreements with employees. The employer should continuously be transparent and truthful during the discussion process and ensure that the employee comprehend the terms, conditions and reasons for the agreement. Thus ensuring that the parties enter into a valid agreement freely and voluntary, without any undue influence.


Article by: Marco Boyens

CEO Regional Manager – Port Elizabeth