What is involved in negotiating an agreement to terminate an employment relationship?
It’s become common practice to refer to an agreement to terminate an employee’s employment as a “Mutual Separation Agreement” or its abbreviation an “MSA”.
[Note: Strictly speaking, the use of “Mutual” is redundant because any agreement presupposes mutual consent of the parties. “Separation Agreement” or “Termination of Employment Agreement” would be more concise.]
RESISTANCE TO AN MSA
Sometimes an employer or an employee may be reluctant to discuss an MSA and prefer to litigate to resolve the dispute.
PRINCIPLE:
The reason could be because there is a “matter of principle” involved in the dispute. The principle for an employer could be to show it takes a zero-tolerance approach to serious acts of misconduct, such as assault, dishonesty, gender-based violence etc. An employee may want to expose bad behaviour or misconduct by a manager, such as bullying, intimidation, victimization, discrimination etc. and claim it’s ‘systemic’.
PRECEDENT:
The employer may want to set a precedent for how it deals with serious misconduct in its disciplinary procedures. Its reasons would be like their wish to establish a principle.
MERITS:
The employer or the employee may each be confident of the merits of their cases. So, they may back themselves to “win” their case in an enquiry and later in a possible CCMA arbitration or in the Labour Court.
DELAYING STRATEGY:
Even with a weak case on the merits, an employer could still “win” in the end by exploiting the delays and costs of litigation to its advantage. This so-called “Stalingrad” strategy can “beat” even the most determined employee by simply exhausting his or her financial ability and willpower to keep the case going until its final conclusion.
AFFECTED PARTIES:
There may be other parties affected by the outcome of a dispute and how it was resolved. For example, there may be several employees accused of misconduct arising from the same incident. It’s more difficult to negotiate MSA’s when more than one employee is involved.
CERTAINTY:
This is the strongest reason to settle a legal dispute with an MSA. You might think you have a “slam dunk” case on the merits and that there’s no chance you’ll lose in the CCMA or in court. But there is never a guarantee. An MSA creates a guarantee. So, you can stop speculating or worrying about what a commissioner or a judge may decide for you at some time in the distant future.
WITHOUT PREJUDICE:
The parties have the comfort of discussing the terms of a possible MSA “off the record” and “without prejudice”. This gives them the space to explore creative options without risking legal liability for any issues in dispute. They understand that an agreement on one issue is subject to agreement on all issues. And that if they cannot agree on all issues, all offers and concessions are withdrawn, and they go back to the positions they started with.
REPUTATIONS:
Legal disputes can cause serious damage to corporate and individual reputations if they play out in the public eye in the CCMA or Labour Court. An MSA can very effectively limit if not entirely eliminate reputational risks by “settling out of court”. They ensure that the existence of the dispute and the terms of settlement are kept confidential.
TIME AND COST SAVINGS:
An MSA can be negotiated and concluded in a few days with little or no legal costs. This is obviously better than waiting possibly years to resolve a dispute by litigation. And it is far less costly than the legal fees which comes with protracted litigation.
RELATIONSHIPS:
An MSA offers the real prospect of preserving personal relationships during and after settlement negotiations.
COMMON TERMS
Some of the most common terms in a MSA are the following:
PAYMENTS: The agreed settlement payments are specified. They usually include contractual entitlements such as accrued leave pay, notice pay, pro-rata bonuses etc. And it could include an ex-gratia or “goodwill” settlement payment.
CONFIDENTIALITY:
The parties undertake to keep the existence and contents of the MSA and its terms confidential.
NO NEGATIVE COMMUNICATIONS:
The parties undertake not to make any negative statements about each other to third parties or in social media or in the press. This minimizes the risks to reputation damage.
FULL AND FINAL SETTLEMENT:
The agreement is in full and final settlement of all claims by the parties arising from the employment agreement.
WITHDRAWAL OF LITIGATION:
The parties agree to withdraw any threatened or pending litigation between them. And they abandon their rights to take further legal action against each other on any issue arising from the employment relationship.
OPENING THE DISCUSSION:
An employer might hesitate to open the discussion about a possible MSA. It might fear it’ll show it doesn’t have a good or sufficient reason to act against the employee. Or it may fear the employee will accuse it of having already decided to terminate the employee. And the employee may hesitate because it might be perceived as accepting guilt or liability.
But these fears would be misplaced. This is because the discussions would be conducted “without prejudice” or admission of liability either way.
A WORD OF CAUTION:
Parties usually use the MSA option for resolving workplace or relationship problems with good intentions. But some with ill-intent may abuse the MSA option to cover up wrongdoing, such as corruption. There’ve been several high-profile cases both in the public and private sectors in which MSAs have been concluded in suspicious circumstances.
They often involve hefty “golden handshakes” and generic reasons, such as for “personal reasons”, “to pursue other opportunities” etc. The real reasons for the termination are not disclosed under the confidentiality protection. The motives for the secrecy could be to prevent internal “dirty laundry” being aired in public. Or they could be to protect other individuals involved in the same wrongdoing from being exposed. So, the secret payment is really “hush money”. An MSA concluded in these circumstances could be set aside by a court if there’s compelling evidence to prove it was entered into in bad faith and against public policy.
OUR TIP:
An MSA is a useful way to finalize a workplace dispute speedily, elegantly and cost effectively. They are particularly useful for resolving disputes at executive and senior management levels. And there’s scope to include points of agreement which an arbitrator or a court would not be able to order, such as confidentiality and reputational risk protections. The discussions could be started by either party at any time before the outcome of a disciplinary enquiry or before an order is issued by the CCMA or Labour Court. The use of an MSA comes with a caveat: it should not be abused to cover up wrongdoing.
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