Termination of employment contract by agreement

The employer and the employee may terminate the employment contract at any time. Although a contract of employment does not require a special form, the termination agreement is not binding unless it is in writing. It reminds us that in order to terminate the contract, there must be a document signed by both parties.

The fact that the employee has received various payments is not considered as termination agreement. (C/F/N 37575 Vol. 8) In this case, the worker left his job after receiving severance pay and notice period payment. Then, he instituted a suit in Federal First instance Court claiming reinstatement with back pay or compensation in lieu of reinstatement. The court found the termination unlawful and awarded him compensation.

Aggrieved by the award, employer submitted petition to the cassation bench demanding reversal of the decision on grounds of fundamental error of law. His main argument was that the worker’s contract was terminated after he willingly received all payments he deserved. However, the bench disagreed with employer’s contention. The bench reasoned, payment by the employer and acceptance of payment by the worker is not sufficient to establish termination by agreement. Such Agreement to be acceptable by law has to meet the requirement of writing.

Similarly, in C/F/N35100 (unpublished) employer argued that receipt of payment constitutes admission of termination agreement. This argument again was rejected by the bench. In its reasoning the bench stated existence of valid termination could only be established through written contract.

In both C/F/N 37575 and C/F/N 35100 the bench was correct in its interpretation of the law. However, in C/F/N 35870 /unpublished/, the bench contradicted itself by reaching a different conclusion. In this case, the worker after receiving notice period payment, severance pay and annual leave, claimed compensation, one-month provident fund and 33 days fuel allowance. The F/F/I/ Court rejected the claims except provident fund. On appeal, the decision was reversed by the Federal High Court.

Finally, the case reached F/S/C Cassation Bench. The following is the bench’s ruling:

The contract was terminated simultaneously with relevant payments. This shows the worker has agreed to the termination. Therefore, there is no way he can claim compensation for unlawful termination, except remaining legal payments.

A contract of employment shall be terminated by agreement in writing as provided in Article 25 (2) of the Labour Proclamation No. 1156/2019. The fact that writing is a mandatory requirement was also affirmed in C/F/N 37575 and C/F/N 35100.

Payment alone does not indicate that the worker has agreed to termination. Agreement has to be manifested in writing to be valid. So, the issue of admission is irrelevant here. In C/F/N 35870, it might be true that when the employee received the payments, he might have orally agreed to the termination. However, if agreement is not in writing, it does not meet the requirements of Article 25 (2) of the Proclamation.

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