A settlement agreement is a legally binding contract between an employer and an employee, intended to resolve disputes, claims, or potential legal issues that may arise at the point of separation.
Typically, it involves the employer providing a monetary payment or other form of compensation to the employee, who in turn waives the right to bring further claims. The agreement may also include clauses requiring the employee to keep information relating to the employer’s business confidential.
A recurring question among employers is whether a settlement agreement is admissible in court. Kenyan courts have, however, provided clarity on this issue.
The emerging principle from case law is that when determining whether a release or discharge agreement is valid, the court considers whether the employee executed the agreement freely and voluntarily, and whether they were fully informed of all relevant facts at the time of signing.
Although there is no statutory obligation for parties to resolve disputes through a discharge or settlement agreement, it is prudent for employers to explore this option.
Such agreements provide an opportunity for both parties to negotiate mutually acceptable terms of separation. More importantly, they protect employers from potentially costly legal disputes, which could lead to not only financial loss but also reputational harm.
The primary objective of a settlement agreement is achieved when the employee agrees to waive all claims against the employer. Employees can only validly waive claims related to unfair dismissal or other statutory rights if the waiver is expressly contained within a settlement agreement.
It is important to distinguish a settlement agreement from a clearance form. Unlike settlement agreements, termination clearance forms do not release employers from statutory obligations or claims an employee may have. Courts always consider the fairness of a termination, even where the employee has signed a discharge or clearance form.
Courts also recognise that the parties are often not in an equal bargaining position after termination. An employee may be desperate to receive their final dues and may sign a clearance form hastily, without scrutinising the details.
At such a point, their primary concern is accessing quick cash to meet immediate personal or social needs. Consequently, courts tend not to attach significant weight to such discharge or clearance forms.
That said, this presumption is not absolute. The court remains open to evidence showing that a discharge form was signed freely and with full understanding. It would be erroneous to treat all cases involving discharge vouchers in the same manner.
Each case must be determined on its own merits, with the Employment and Labour Relations Court assessing evidence to support or disprove the validity of the discharge document.
In the absence of statutory or common-law restrictions, the general principle of English contract law applies: parties are free to determine for themselves the obligations they wish to undertake.
They may do so in writing, orally, or by conduct. The court’s role is simply to give effect to the intentions of the parties as expressed in the settlement agreement.
The writer is a Partner at Oscar & Associate Advocates.
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