What is a ‘Settlement Agreement’?
One of the innovations of the Workers’ Rights Act (‘Act’) is the concept of ‘compromise agreement’ (also referred to as a ‘Settlement Agreement’ in this article) (‘Compromise Agreement’).
Under the WRA, a Compromise Agreement may be entered into, by the employer and worker in order to resolve disputes concerning, amongst others,
- the amount of compensation or other related payments, following the termination of employment, or
- the amount of remuneration payable in the event of non-payment or short payment of remuneration.
A Settlement Agreement is often used where the employer is closing down or reducing its workforce and does not wish to go to the Industrial Court or the Redundancy Board for a resolution of the dispute.
WHEN IS A SETTLEMENT AGREEMENT LEGALLY VALID?
A Settlement Agreement is valid and binding when it has been examined by an independent adviser or where the worker has received independent legal advice prior to entering into the Settlement Agreement. In this regard, an independent adviser may be a qualified law practitioner or a member of the registered trade union or an officer of the Ministry of Labour, Human Resource Development and training.
FIRST STEP: NOTICE
Section 63 of the Act provides that the minimum notice period shall be 30 days which can be contractually extended. The employer must, at the time of notifying the worker, state the reason for termination of employment. The notice may be verbal or written.
The notice period will not apply where the employer summarily dismisses the worker on grounds of poor performance or misconduct under sections 64-66 of the Act, or where the worker has reached the retirement age.
PAYMENT IN LIEU OF NOTICE
Alternatively, the Act allows the terminating party to terminate employment with immediate effect by making a ‘payment in lieu of notice’ equivalent to the remuneration (which includes the basic salary and benefits) that the worker would have earned during the notice period.
SECOND STEP: INITIATING NEGOTIATIONS
Employers are encouraged to initiate negotiations with their workers in order to agree on the terms of termination and settlement amount. The confidentiality of these negotiations may be protected under the ‘without prejudice’ rule. In this regard, all communications, (i.e letters, emails, agreements) which bear the heading ‘without prejudice’, will not be admissible as evidence and cannot be disclosed in any court/other proceedings whether it is sought to be used in court by the employer or the worker.
ELEMENTS OF A SETTLEMENT AGREEMENT
- Compensation Amount
In addition to payment of the outstanding remuneration and all payments that were initially agreed in the employment contract, the employer may introduce a compensation amount to favour settlement. The threshold for such compensation is usually the amount of severance allowance calculated in accordance with the Act.
- Garden Leave
The employer may allow the worker reasonable time off in order to seek further employment during the notice period without any loss of pay on satisfactory proof of the purpose of the request. The employer may, therefore, agree for a garden leave period from the date of notice until the termination date.
To provide additional protection to the employer, waivers may be included in the settlement agreement such that the worker agrees to waive all rights to bring future claims against the employer in relation to the termination of employment.
Upon termination of an employment contract, the Act provides that the employer shall pay the following into the Portable Retirement Gratuity Fund (PRGF) (where applicable):
- Unpaid monthly contribution: The employer shall pay to any unpaid monthly contribution in relation its worker to the Mauritius Revenue Authority (MRA).
- Payment for Past Services: The employment shall pay for the past services of the worker to the MRA no later than one month after the date of termination of employment.
The contribution to the PRGF is not applicable where
- the employer has a private pension scheme (as defined in the Act) or
- the worker earns a monthly basic salary exceeding MUR 200,000. The employer may deduct the contributions payable to the PRGF from the compensation amount.
As discussed above, steps to reduce workforce and negotiations to reach a settlement agreement may be tricky. In case of doubt, you should seek legal advice.
For further information, please contact:
Vaishali Damonaiko, Appleby