The practice of concluding a mutual separation agreement (MSA) with an employee to bring about the termination of their employment is common. But this begs the thorny question of how to deal with this type of termination when completing the UI19 form to claim unemployment benefits from the Unemployment Insurance Fund (UIF).
The benefits of an MSA for employers mean that the need for protracted dismissal processes can be avoided and an agreement can be reached in full and final settlement of any claims or CCMA proceedings, ensuring finality and avoiding possible costly litigation.
However, when concluding a mutual separation agreement, the employee may express an intention to claim unemployment benefits from UIF. But is this legal? The Unemployment Insurance Act (UIA) provides that all contributors to the UIF may be eligible to claim unemployment insurance benefits where the reason for unemployment is:
So no, in circumstances where an employee resigns or chooses to conclude a mutual separation agreement, UIF benefits are not available.
This is because the termination of the employee’s employment is not because of dismissal or termination by the employer but comes about by agreement between the parties.
If the employee requests that the employer reflect the reason for termination of employment as a dismissal to enable them to claim unemployment insurance benefits, they are effectively requesting the employer to commit fraud on the South African Revenue Service and may amount to a criminal offence in terms of the UIA.
This was confirmed by the Labour Court in 2021 in the matter of Swanepoel v KPMG. In this matter, the employee concluded a separation agreement with KPMG to avoid being subjected to poor performance proceedings.
The employee sought to claim unemployment insurance benefits from the UIF. The Department of Labour rejected the employee’s claim on the basis that the reason for the termination of the employee’s employment was recorded by KPMG on the UI-19 form as ‘involuntary resignation’. The employee thereafter attempted to persuade KPMG to change the reason for the termination of his employment to allow him to claim unemployment insurance benefits. KPMG refused to do so.
The employee then instituted an application in the Labour Court seeking an order to compel KPMG to reflect the reason for the termination of his employment as a ‘retrenchment’, or ‘constructive dismissal’ or any other reason the court deemed appropriate.
While the Labour Court ultimately concluded that it lacked jurisdiction to decide on the matter, in considering the employee’s arguments, it found that where an employer and an employee agree to the termination of the employee’s employment on a mutual basis, recording any other reason for termination on the UI-19 form amounts to a false statement as to the reason for the employee’s termination to enable the employee to claim unemployment insurance benefits to which the employee is not entitled.
As the UIA prohibits anyone from wilfully making a false entry on any document relating to a contributor’s claim for benefits, such a false recording would amount to an offence in terms of the UIA for which employers may be liable to a fine or imprisonment or both a fine and imprisonment.
In summary, employers should: