When seeking to reach an agreement with an employee on the terms of a mutual separation agreement (“MSA”) or in an effort to come to the aid of an employee who faces unemployment after termination, employers might be tempted to misrepresent to the Unemployment Insurance Fund (“UIF”) that an employee was retrenched when in fact this was not the case. Employers should remember, however, that they will be committing a criminal offence if they do so.
An employee who faces the possibility of being subjected to disciplinary action, dismissal due to poor work performance, may propose to the employer that an MSA be concluded regulating the termination of his or her employment.
In most cases, the MSA, will record that the contract of employment is terminated by agreement or that the employee will resign.
The advantage of this approach for employees is that they avoid the risk of being dismissed on the grounds of misconduct or poor work performance and a dismissal would therefore not stain their employment record.
There is also the possible advantage that the MSA will make provision for the payment of a sum of money to the employee. There are also potential advantages for employers: an MSA may eliminate the possibility of the employee claiming unfair dismissal and save the costs associated with disciplinary proceedings or poor work performance procedures and any subsequent litigation. In many cases, it may be the employer who proposes the conclusion of a MSA.
The way in which the MSA is formulated may have important tax and other implications. This is illustrated by the facts in the recent decision of the Labour Court in Swanepoel v KPMG Services (Pty) Ltd.
In this matter, Mr Swanepoel had been employed by KPMG as Senior Manager: Internal Audit Risk and Compliance Service with effect from 16 November 2015. During a meeting on 14 November 2017, KPMG raised concerns with Mr Swanepoel regarding his performance. Mr Swanepoel was given an option to resign or be subjected to a disciplinary process. However, Mr Swanepoel was not prepared to resign because he wanted to claim an unemployment benefit from the UIF and/or to lodge a claim for payment in terms of an insurance policy.
It appears that KPMG was not prepared to agree to this.
On 15 November 2017, KPMG and Mr Swanepoel nevertheless concluded a MSA in terms of which his employment was terminated “on a mutual basis effective from 30 November 2017”. KPMG subsequently provided Mr Swanepoel with a certificate of service as well as the UIF’s UI-19 Form. The completion of the latter form is necessary to claim an unemployment benefit from the UIF. The reason for the termination recorded in these documents was described as “involuntary resignation”.
When Mr Swanepoel sought to claim an unemployment benefit from the UIF, he was informed that the reason for termination stated in the UI-19 Form, i.e. voluntary resignation, was not a recognised reason for claiming a benefit in terms of the Unemployment Insurance Act (“UIA”). He requested KPMG to amend the UI-19 Form to state a recognised reason, but to no avail. Mr Swanepoel then brought an application before the Labour Court to compel KPMG to classify his dismissal as a retrenchment and accordingly to amend, inter alia, the UI-19 Form.
The Labour Court noted that, in terms section 16(1)(a) of the UIA, an unemployed contributor to the UIF is entitled to unemployment benefits if the reason for the termination of employment is:
· the termination of the contributor’s contract of employment by the employer or the ending of a fixed-term contract;
· the dismissal of the contributor as defined by section 186 of the Labour Relations Act, 1995; or
· insolvency in terms of the provisions of the Insolvency Act, 1936.
KPMG contended that the reason stated in the UI-19 Form and the certificate of service was not an incorrect reflection of the terms of the settlement agreement and denied that it had retrenched or constructively dismissed Mr Swanepoel. KPMG further contended that, when properly construed, the settlement agreement constituted a termination of the contract of employment on a mutual basis and settled all the claims that may arise from the contract of employment.
The Labour Court found that the introductory clause of the MSA clearly states that the parties reached consensus regarding Mr Swanepoel’s departure and that it was common cause that mutual separation was an option chosen by Mr Swanepoel instead of facing a disciplinary enquiry based on allegations of poor performance. In this context, Mr Swanepoel’s contract of employment was terminated by agreement.
The Labour Court further noted that section 64 of the UIA provides that no person may wilfully make any false entry on a contributor’s record card or on any other book, record or document relating to either a contributor’s employment history or to a contributor’s claim for a benefit, and that any person who contravenes this provision is guilty of an offence.
Given the finding that Mr Swanepoel’s contract of employment was terminated on a mutual basis, the Labour Court found that the recordal of “involuntary resignation” in the UI-19 Form would obviously constitute a false entry in terms of section 64(1)(b) and a criminal offence in terms of section 64(2) of the UIA. The Labour Court held that, in essence, Mr Swanepoel asked KPMG to lie about the reason for the termination of his contract of employment in order to enable him to claim UIF benefits and, in turn, to commit a criminal offence in terms of section 64 of the UIA.
In light of these findings, the Labour Court ultimately held that, all things considered, Mr Swanepoel’s contract of employment was terminated by agreement. As such, Mr Swanepoel claim’s must fail as it was ill-conceived and unjustified. The application was dismissed.
Siphile Hlwatika
