Voluntary retrenchment agreements and packages

When a company contemplates retrenching employees, voluntary severance packages (VSP’s) are often offered. In terms of a VSP, an employee volunteers to be or agrees to be retrenched. The purpose of using VSP’s is to mitigate the adverse effects of the formal retrenchment process on the employees. These agreements need to be entered into freely and voluntarily by both parties, and an employee cannot be forced to sign such an agreement. The agreement should be reduced to writing and signed by both parties.

VSP’s are signed in full and final settlement of all claims that the parties may have against each other. Employees have a right to refer disputes to the CCMA and/or Labour Court. However, by agreeing to be retrenched, the employee thus waives their rights to refer an unfair dismissal dispute to the CCMA and/or Labour Court for adjudication. The employee however retains their rights to pursue the company if the company does not comply with any of the terms agreed to in the VSP agreement.

Constitutional Court ruling relinquishing rights to CCMA dispute

In the case of Gbenga-Oluwatoye v Reckitt Benckiser South Africa (Pty) Limited and Another (2016) 37 ILJ 2723 (CC) the Constitutional Court found that a clause in a voluntary separation package in which the parties relinquish their rights to approach the Commission for Conciliation, Mediation and Arbitration (CCMA) or the Labour Court regarding any dispute that arises from the work relationship is valid despite section 34 of the Constitution which grants every person the right to access to the courts. The reason for this is that the parties agree that the VSP is signed in full and final settlement of all disputes between the parties.

A VSP cannot however provide the employee with less than what is owed to them in terms of South African law. Employees should furthermore be offered additional benefits to those they would be legally entitled to. Additional benefits could be, for example, two weeks of severance pay for every year worked instead of one, or providing the employee with any form of gratuitous payment over and above the statutory payments.

Labour court ruling on employees and dismissal

In the matter of Hodges v Urban Task Force Investments CC and Others (JR840/12) [2013] ZALCHB 295 (7 November 2013) the Labour Court held that an employee cannot waive their rights to a fair dismissal in exchange for payments which are legally owed to the employee. For this reason, a voluntary retrenchment agreement will only be valid and enforceable if the employee is paid or granted a ‘sweetener’ in the form of an amount or benefits in addition to that to which they are legally entitled. Thus, if in terms of a VSP an employee is only paid what would have been owed to them in terms of the law, they retain their right to take the matter to the CCMA and/or Labour Court for an unfair dismissal case to be decided. If companies wish to avoid unnecessary cases referred to the CCMA and/or Labour Court, it is thus imperative to ensure that employees signing VSP’s receive more than what is legally due to them.

The case of SACU and another v Telkom SA SOC Ltd and others [2020] JOL 46876 (LC), confirmed that VSP’s are a way for a company to reduce the number of forced retrenchments that might happen at a company. The case further confirmed that section 189 of the LRA does not have a step-by-step sequence in which consultations must take place, and thus the issue of when to offer VSP’s can be discussed and agreed on between the consulting parties.

Should your company contemplate retrenchments and or voluntary severance packages, contact Invictus Group on 0861 737 263 to assist in ensuring that the process complies with all the legalities.