Mutual Separation or Disguised Retrenchment? Labour Appeal Court Clarifies
The Labour Appeal Court has overturned a finding of unfair dismissal in WBHO Construction (Pty) Ltd v Masenya (2026), holding that a valid mutual separation agreement does not constitute a dismissal and falls outside the scope of retrenchment procedures under the Labour Relations Act (LRA).
The employee was employed by WBHO Construction as a grader operator from April 2018. In November 2020, discussions arose about operational requirements and a possible transfer to a Northern Cape project. The employee declined the relocation, citing family commitments.
Following these discussions, the parties signed a document titled a “Mutual Separation Agreement” on 3 December 2020. In terms of the agreement, the employee received a severance package of over R181,000 in full and final settlement of any claims.
However, the employee later challenged the termination, alleging that he had been unfairly dismissed under the guise of a mutual separation.
The dispute was referred to the Bargaining Council for the Civil Engineering Industry. The Arbitrator found that, despite its title, the agreement resembled a retrenchment letter and that no proper consultation process in terms of section 189 of the LRA had been followed. The Arbitrator concluded that the employee had been unfairly dismissed and ordered his reinstatement with repayment of the severance amount.
WBHO sought to review the award in the Labour Court. The Court upheld the arbitrator’s decision, finding that the employer could not use a mutual separation agreement to bypass statutory retrenchment procedures. It held that the dismissal was both procedurally and substantively unfair.
On appeal, the Labour Appeal Court took a different view. It emphasised that the central issue was whether a valid agreement existed between the parties. This, the Court held, is a jurisdictional question requiring application of the correctness test, not the reasonableness test applied by the arbitrator and Labour Court.
The Court found that the parties had freely and voluntarily concluded a mutual separation agreement. There was no evidence of coercion, and the employee accepted the terms in full and final settlement. As such, the agreement was valid and enforceable.
Importantly, the Court held that where a valid mutual separation agreement exists, there is no dismissal. Consequently, the bargaining council lacked jurisdiction to determine an unfair dismissal dispute.
The Court further rejected the notion that an employer is barred from concluding a mutual separation agreement merely because operational requirements had been discussed. It held that parties remain free to contract, even in the context of potential retrenchment, provided the agreement is genuinely consensual.
The appeal was upheld. The Labour Appeal Court set aside both the Labour Court’s judgment and the arbitration award, substituting them with a finding that the employee had not been dismissed. No order as to costs was made.
The judgment underscores the legal distinction between consensual termination and dismissal. It confirms that a properly concluded mutual separation agreement will be upheld, and that such agreements cannot lightly be recharacterised as retrenchments in the absence of evidence of coercion or lack of genuine consent.
This article is for informational purposes only and does not constitute legal advice. For specific legal guidance on protected disclosures, employment practices, or compliance obligations, consult a qualified labour law practitioner.
© 2026 Global Business Solutions (GBS). All rights reserved.
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