Hello Mutual Separation Agreement – Goodbye UIF

A growing trend of terminating the employment relationship is the conclusion of a mutual separation agreement (“MSA”), which envisages the termination of employment by mutual consent between the employer and the employee. This is neither a resignation, nor a dismissal. In his book entitled Workplace Law 8 ed (Juta Cape Town 2005) at pages 84 and 85, Professor John Grogan remarked as follows regarding this form of termination of employment:

“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.”

Section 16(1)(a) of the Unemployment Insurance Act 63 of 2001 (the “UIA”) provides that a contributor is entitled to claim unemployment benefits only if the reason for the unemployment is due to termination of a fixed-term contract, dismissal or insolvency. Since the termination of employment in terms of an MSA does not constitute dismissal, does it then mean that the employee cannot claim unemployment benefits? This issue was brought before the Labour Court in the recent case of Swanepoel v KPMG Services (Pty) Ltd (J494/19) [2021] ZALCJHB 457.

The facts of the Swanepoel case, briefly, are that Swanepoel was terminated in terms of an MSA as a means to avoid potential disciplinary process for his poor work performance. His employer, KPMG, recorded “involuntary resignation” as the reason for termination on his UI19 form, whereupon Swanepoel approached the Labour Court to compel KPMG to amend the reason for termination on his UI19 form to ‘retrenchment’, to enable him to claim unemployment benefits. ?

The court scrutinised the background and wording of the MSA and concluded that it was clear that the contract of employment terminated on a mutual basis. The court further referred to section 64(1) of the UIA which stipulates that it is a criminal offence for employers to misrepresent the nature of the reason for termination in order to assist the employee in qualifying for the fund benefits, and that Swanepoel was asking the court to compel KPMG to commit the said criminal act. The court made it clear that it cannot compel an employer to commit a criminal offence by way of such misrepresentation and concluded that it lacked jurisdiction to adjudicate the matter.

The Labour Court dismissed Swanepoel’s claim, holding that it was ill-conceived and unjustified.?Notably, the court observed that KPMG’s recordal of “involuntary resignation” of Swanepoel’s UI19 also constituted a false entry and, consequently, a criminal act in terms of section 64.

This decision not only serves as a caution to employees seeking to enjoy unemployment insurance benefits consequent to termination of employment in terms of an MSA but also to employers against misrepresenting the true reason for termination.