Mutual agreement: can a labour dispute really be avoided?

Mutual agreement: can a labour dispute really be avoided?

An employment relationship can be terminated in three ways: by unilateral notice, by termination with immediate effect, or by mutual agreement. The advantage of mutual agreement is that it affords greater freedom to determine the terms than a notice of termination; however, do the parties have unlimited freedom to agree on anything? Employers often trust that, upon signing a mutual agreement, the employee will not bring legal proceedings – but can a labour law dispute really be avoided?

How are the notice period and the obligation to state reasons determined?

In the event of termination by the employer, the notice period is generally 30 days, which increases for longer periods of employment. The parties are free to deviate from this; by mutual agreement, they can completely rewrite this fixed timeframe and even terminate the employment relationship on the very day the agreement is signed. It is also possible for the parties to agree on a notice period that is much shorter or longer than that prescribed by law.

In the event of termination by the employer, the employee must be exempted from performing work for at least half of the notice period, and the employee is entitled to payment for this period as well. In the case of termination by mutual agreement, the parties may also agree that the employee has to continue to work for the entire duration of the notice period.

With a few exceptions, termination by the employer must be reasoned, and termination with immediate effect may take place if the employer provides factual grounds for a serious breach of the employee’s duties. In the case of termination by mutual agreement, however, neither party is required to justify why they wish to terminate the employment relationship.

If, however, the employer does provide a reason in the mutual agreement as to why the employee’s services are no longer required, they must prove, in the event of a legal dispute, that the reason given is true.

Can the parties deviate from the Labour Code in any respect?

In principle, a mutual agreement gives the parties greater freedom to determine the terms of termination than a unilateral notice of termination. However, there are certain provisions from which even a mutual agreement cannot deviate.

For example, the parties may include a non-competition claude in the mutual agreement, but such an agreement is subject to certain limits. The essence of the agreement is that, in return for compensation, the employee undertakes not to take up employment with a direct market competitor of the company, nor to set up a competing business of their own. In this case, even by mutual consent, the employee may not be restricted in their employment for more than two years, and the consideration must amount to at least one-third of the salary due for the duration of the restriction.

Nor may it be agreed that the employee should receive part of the payment due for the notice period not in cash but, for example, in the form of vouchers. If the employee is still entitled to a proportionate amount of annual leave for the year in question but the employer has not granted it, this must be paid out in cash, and the employee cannot validly waive this entitlement.

It is therefore important to be aware of which provisions cannot be derogated from, even by agreement, as in such cases the provision in question is void and the employer cannot enforce it.

Does signing a mutual agreement definitely prevent a legal dispute?

Employers often believe that, by signing a mutual agreement, they have properly settled the legal relationship between them and need not fear an employment dispute. However, this is not always the case, as the employee may still bring a claim even where a mutual agreement has been signed.

The most important requirement of a mutual agreement is that it must be based on the free and uninfluenced will of the parties. Therefore, if the employer exerts undue pressure – for example, by refusing to allow a reasonable period for consideration and expecting the employee to sign the agreement immediately, or by not allowing the employee to seek legal advice before signing – the employee may bring a claim against the employer after signing.

The employee may also bring a claim if the employer has misled them regarding a material fact – for example, if the employer informs an employee who is protected against dismissal that they are not covered by that protection.

However, it is not in itself unlawful for an employer to state that, in the absence of an agreement, they will terminate the employment contract on the grounds of legally documented breaches of duty.

Summary

A mutual agreement achieves its purpose when it genuinely brings the matter to a close, rather than marking the beginning of a protracted legal dispute. It is therefore worth being aware of what may form the subject matter of the agreement and what circumstances may provide grounds for challenging it.