A recent Labour Appeal Court judgment confirms that a valid mutual separation agreement means there is no dismissal under the LRA, even where retrenchment had been on the table.

When does an employment relationship end by agreement, and when has the employee actually been dismissed? The distinction is not academic. If there is a dismissal, the protections of the Labour Relations Act 66 of 1995 (LRA) apply, and an employer who skips the prescribed process is exposed to reinstatement and back-pay. If the parting is genuinely consensual, none of that machinery is triggered. A recent Labour Appeal Court (LAC) decision drew that line firmly in favour of contractual certainty and it is essential reading for any employer relying on a mutual separation agreement.

The dispute at a glance

How the matter arose

The employee	Engaged on 18 April 2018 as a final-level grader operator
The trigger	In November 2020 the employer raised a transfer to the
The disputed conversation	The employer said the employee asked to be retrenched, citing financial pressure and a home-building project. The employee said he was told he would be retrenched if he refused the move.
The agreement	On 3 December 2020 the parties signed a document headed “Mutual Separation Agreement”. The employee received severance of R181,541.75.
The challenge	He then referred an unfair-dismissal dispute to the Bargaining Council for the Civil Engineering Industry.

The arbitrator sided with the employee, treating the signed document not as a true mutual separation but as a retrenchment letter in disguise. On that view the employer had bypassed the consultation requirements of section 189 of the LRA, and reinstatement followed. The Labour Court agreed, dismissing the employer’s review and reasoning that a mutual separation agreement could not be used to sidestep a proper retrenchment process.

The employer took the matter on appeal and the LAC reversed course.

Two principles that decided the case

The legal framework

1.Whether a dismissal happened is a jurisdictional question

The LAC’s first move was to correct the standard of review. Whether a dismissal occurred at all is a jurisdictional question, and jurisdictional findings are tested for correctness, not mere reasonableness. The reviewing court does not ask whether the arbitrator’s conclusion fell within a band of reasonable outcomes; it asks whether the conclusion was right. That principle was confirmed in Johnson Uniform Solutions (Pty) Ltd v Brown and Others [2014] ZALCJHB 32. The Labour Court had applied the wrong test, asking whether the award was reasonable when it should have asked whether a dismissal had occurred at all.

2.Freely concluded contracts must be honoured

The second principle was the sanctity of contract. As the Supreme Court of Appeal put it in Mohamed’s Leisure Holdings (Pty) Ltd v Southern Sun Hotels Interests (Pty) Ltd 2018 (2) SA 314 (SCA), parties are free to contract and their bargains will be enforced where they are struck freely and voluntarily. A valid contract needs only an intention to be legally bound and genuine agreement on the terms. Where those ingredients are present, the agreement holds and crucially, nothing in the LRA stops parties from concluding a mutual separation agreement even while operational requirements are being discussed.

Section 189 governs dismissals for operational requirements, not terminations the parties choose by agreement.

How the LAC applied the law

The reasoning

Applying the correctness test, the LAC found that both parties had signed the mutual separation agreement voluntarily. The employee had received the agreed severance package and had accepted the terms in full and final settlement of all claims. There was no finding that he had been coerced into signing. On those facts, the document was exactly what it said it was.

That left the Labour Court’s central concern, that the employer had used the agreement to dodge section 189. The LAC rejected it. Section 189 is engaged only when an employer dismisses an employee for operational reasons. A termination by valid agreement is not a dismissal, so the section is never triggered. And the simple fact that operational requirements had been discussed in the run-up to the agreement did not transform a consensual separation into a retrenchment. Discussion is not dismissal.

Because the agreement was valid, there was no dismissal. Because there was no dismissal, the arbitrator had no jurisdiction to hear the dispute in the first place. The LAC upheld the appeal, set aside the Labour Court’s judgment, reviewed and set aside the arbitration award, and declared that the employer had not dismissed the employee.

What this means for employers and employees

Practical takeaways

1. A valid mutual separation agreement ends the dismissal enquiry. If the parting is consensual and properly recorded, there is no dismissal and the unfair-dismissal regime simply does not apply.
2. Operational discussions don’t poison the agreement. Parties may conclude a mutual separation agreement even where retrenchment is under discussion. It remains a legitimate way to end the relationship.
3. Consent will be scrutinised where it is challenged. Allegations of coercion, duress or misrepresentation put the validity of the agreement squarely in issue, and a court will look behind the signature.
4. Drafting and process matter. Mutual separation agreements should be clearly worded, genuinely consensual, signed voluntarily, and ideally accompanied by an opportunity to take advice, so they withstand later attack.

Frequently asked questions

Is a mutual separation agreement a dismissal?

No. Where employment ends by a valid mutual separation agreement that both parties signed freely and voluntarily, there is no dismissal in law. Because there is no dismissal, the LRA’s unfair-dismissal provisions are not engaged, and the CCMA or relevant bargaining council has no jurisdiction to arbitrate the dispute. Can an employer use a mutual separation agreement during a retrenchment process?

Yes. Nothing in the LRA prevents the parties from concluding a mutual separation agreement, even while operational requirements are being discussed. The mere fact that retrenchment was raised does not convert a genuine, consensual separation into a dismissal requiring compliance with section 189. Does section 189 of the LRA apply to a mutual separation?

Section 189 governs dismissals for operational requirements and is triggered only where the employer dismisses the employee. A consensual termination by valid agreement is not a dismissal, so the section 189 consultation procedure does not apply. Can a mutual separation agreement be set aside?

Potentially. The sanctity-of-contract principle means a freely concluded agreement will be enforced. But where there is credible evidence of coercion, duress, fraud or misrepresentation, a court or tribunal will examine whether the employee genuinely consented and may set the agreement aside.

Considering a mutual separation agreement?

Whether you are an employer wanting an agreement that holds up, or an employee unsure whether you were truly free to sign, our Employment & Labour team can help you understand your position before you act.

This article is provided for general information only and reflects the law as at the date of publication. It is not legal advice and should not be relied on as such. The judgment discussed is referred to descriptively; please confirm the full case name and citation before citing it. For advice on your specific circumstances, contact a qualified employment-law practitioner at Mayet & Associates.