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Termination of an employment relationship by agreement: Implications for unemployment benefits by Bianca du Toit

The manner of and reasons for termination of an employment relationship will determine the rights and obligations of the parties under the Unemployment Insurance Act 63 of 2001 (“UIA”) and this requires furnishing correct information under the UIA. Failing to do so may have serious consequences for both parties.

Termination of an employment relationship may occur for a number of reasons, including, but not limited to, misconduct, operational requirements of the employer, or a breakdown in the relationship between the parties. Whatever the underlying reason, the parties may decide to enter into an agreement to terminate the employment relationship.

Under section 16 of the UIA, a contributor (former employee) has the right to unemployment benefits in the following circumstances:

  • Termination of the contributor’s contract by the employer (i.e. not by agreement).
  • Termination of the period of a fixed term contract.
  • Dismissal of the contributor, as defined by section 186 the Labour Relations Act 66 of 1995.
  • Insolvency in terms of the Insolvency Act.
  • In the case of a domestic worker, termination of the contributor’s contract of employment by the death of the employer of that contributor.

In the event of termination of an employee’s contract in circumstances other than those listed above, the employee will not be able to claim employment benefits. This will be the position if the contract terminates as a result of the employee’s resignation or an agreement between employer and employee.

Whatever the implications for the employee’s right to claim under the UIA, the employer must record the reason for termination of the employment relationship correctly.

Under section 56(1) and 56(3) of the UIA, read with Regulation 13(1) – (2) of Government Notice 400 of 28 March 2002, as amended, employers are required to complete a UI-19 form prescribing the information to be submitted to the Unemployment Insurance Commissioner upon, inter alia, termination of an employment contract (“UI-19”).

An employer may be inclined to enable the employee to claim unemployment benefits by stating one of the grounds listed in section 16 of the UIA as the reason for termination of the employment relationship, whereas the true reason is that the parties reached an agreement on termination.

What is the position if it appears that an employer, for whatever reason, incorrectly records the true reason for termination of the employment relationship?

In the case of Swanepoel, Andre Pieter v KPMG Services (Pty) Ltd J494 2019 (“Swanepoel”) the Labour Court decided on the consequence of misrepresenting facts in a UI-19 form, particularly in the circumstance where the reason for termination was an agreement between the parties.

 In Swanepoel the employee was employed as a Senior Manager. The employer raised certain issues concerning his performance and the employee was given the option to resign or be subjected to a disciplinary process.

With a view to claiming under the UIA, the employee asserted that he did not wish to resign, nor to undergo a disciplinary process relating to his poor performance. Subsequently the parties entered into a settlement agreement to terminate their employment relationship, by way of a mutual separation agreement. The employee was then issued with a certificate of service and the requisite UI-19. The reason furnished by the employer for termination was ‘involuntary resignation’, which is not a ground recognised for purposes of UIA claims. The employee thereafter brought an application in the Labour Court to compel the employer to amend the reason for termination as stated in the UI-19, by stating the reason for termination as retrenchment, or any other reason that would enable the employee to claim unemployment benefits.

The Labour Court decided as follows:

  • Where an employment contract is terminated by a settlement agreement between the parties, this constitutes the true reason for termination of the employment contract, and should be recorded as such. Termination by mutual separation is not a form of dismissal for purposes of the UIA.
  • Should any other reason be recorded on a document relating to an employee’s claim for unemployment benefits, this would amount to a false entry and the employer may be guilty of a criminal offence under the UIA.
  • Should it be found that an employer “lies” about the true reason for termination, which results in an incorrect payment of benefits under the UIA, this will constitute a criminal offence under the UIA, and the employer also risks being charged and convicted of fraud.

In conclusion: Where an employer and employee enter into an agreement to terminate the employment relationship, they must ensure that the reason for the termination and all other information required under the UIA is stated correctly. Failing to do so may have serious consequences for both parties.

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