Compromise Agreement Redundancy Template for South Africa

Yes. A compromise (known in our common law as a transactio) is a binding contract once both parties sign it, and it settles the retrenchment dispute on the recorded terms. To be effective it must show clear offer, acceptance and consideration, usually the severance and ex gratia payment in exchange for the employee's waiver of claims. Electronic signature is valid under the Electronic Communications and Transactions Act 25 of 2002, provided both parties agree to sign that way.

It should identify the parties and the employment relationship, state the operational requirements ground for termination, the termination date, and an itemised breakdown of every payment (notice pay, accrued leave, statutory severance and any ex gratia top-up). It must include a full and final settlement clause and an express waiver of the right to refer an unfair dismissal or unfair labour practice dispute to the CCMA or a bargaining council. Practical add-ons that prevent later disputes are the certificate of service required by section 42 of the Basic Conditions of Employment Act, the UI-19 declaration for UIF purposes, and clauses on confidentiality, non-disparagement and return of company property.

Section 41 of the Basic Conditions of Employment Act 75 of 1997 sets the floor at one week's remuneration for each completed year of continuous service with the employer. Notice pay is separate and runs on the section 37 scale: one week under six months' service, two weeks from six to twelve months, and four weeks after a year. Accrued but untaken leave must also be paid out under section 40, and the payments schedule in the agreement should list each of these separately so the tax treatment is clear.

No. Section 189 of the Labour Relations Act 66 of 1995 requires a joint consensus-seeking process, including written notice of the contemplated retrenchment and disclosure of the reasons, alternatives, selection criteria and severance proposal, before dismissal for operational requirements. A compromise agreement signed without that process leaves the dismissal open to challenge as procedurally unfair. Employers with 50 or more employees who retrench above the section 189A thresholds must also observe the facilitation and 60-day timeframes in that section, and the recitals clause should record which process was followed.

A properly drafted full and final settlement with an express waiver clause is normally raised as a complete defence if a referral is made, because the dispute has been compromised. The waiver will not hold up if the employee proves duress, misrepresentation or that they did not understand what they were signing, so record in the agreement that the employee had a reasonable opportunity to consider the terms and could be assisted by a trade union representative. Where the matter has already been referred, the settlement can be made an arbitration award under section 142A of the Labour Relations Act, which makes it directly enforceable.

A genuine severance benefit paid because of retrenchment on operational requirements is taxed under the retirement lump sum benefit table, with the first R550,000 of cumulative lump sums taxed at nil. The concession does not apply if the employee held more than 5% of the company's shares or members' interest. The employer must apply to SARS for a tax directive (form IRP3(a)) before paying, so the agreement should state that payments are subject to the directive and to lawful deductions, and separate the severance amount from notice pay and leave pay, which are taxed as normal remuneration.

Timing is driven by the consultation process rather than the document: a small-scale section 189 process often runs over two to four weeks, while a section 189A process carries a 60-day facilitation period before notice may be given. Once both parties have signed, the terms can only be altered by a further written agreement signed by both, which is why a variation clause and a whole agreement clause are included. Any changes to payment amounts made after a SARS tax directive has been issued will require a fresh directive.