A discharge agreement is an understanding between an employer and an employee, guaranteeing the employer immunity from any future claims from the employee upon payment of all terminal dues to the terminated employee- including salary, unutilized leave days, and all other payable benefits.
These agreements, though not expressly provided for in law, have gained popularity due to common practice in the employment sector. In most instances, the terminated employee signs the discharge agreement before their terminal dues are paid to them; hence the discharge agreements are used to absolve employers of any further liability after the termination of the employment relationship.
Nonetheless, there are instances where the terminated employees seek further redress even after signing these agreements. In these scenarios, the Courts are left to decide on the validity of the discharge agreement and whether it is binding or not.
Are discharge agreements valid and/or binding?
The Employment and Labour Relations Court (ELRC) has dealt with this question numerous times, consequently laying down a general presumption that employers have higher bargaining power in an employment relationship and thereby questioning the binding nature of discharge agreements.
The Court in determining whether a discharge agreement was valid in Trinity Prime Investment Limited v Lion of Kenya Insurance Company (2015) eKLR held that the discharge voucher signed by the employee amounted into a binding contract. Therefore, the court will give effect to the intention of the parties as expressed in the agreement.
The Court gave guidance in the case of Thomas De La Rue (K) Ltd v David Opondo Omutelema (2013) eKLR, where the employee while signing a clearance form, entered into a discharge agreement with the employer. The employee went ahead to sue the employer claiming compensation for termination of employment. The ELRC in determining the matter, held that the discharge agreement cannot release an employer from their statutory obligations. The Employer appealed against this decision and the Court of Appeal agreed with the ELRC that the discharge agreements do not negate the employer’s statutory obligations and therefore cannot preclude the Court from enquiring into the fairness of the termination. The Court of Appeal further held that the Court should always determine whether the discharge agreement was entered into freely and willingly and with knowledge of all facts.
Therefore, inasmuch as discharge agreements are meant to bar employees from seeking further redress, the scenarios must be interrogated on a case-to-case basis, while considering the circumstances of the case.
More recently, the ELRC in Pauline Waigumo v Diamond Trust Bank (2021) eKLR laid down guidelines in an employee’s quest for further redress upon signing a discharge agreement and stated:
- A general principle that a pre-trial settlement is a contract between the parties;
- The settlement is to be considered generally binding on the parties UNLESS it is marred with the vitiating factors of a contract;
- Such settlements may constitute a full settlement of issues with the consequence that parties to them may not raise claims on the same subject matter in the future; and
- There is no general principle that these settlements will inevitably discharge an employer from his/her statutory obligations under a contract of service.
Therefore, when a Court is faced with the question as to validity and the effect of a discharge agreement, it must consider:
- The significance of the agreement – was it affecting only the terminal dues or the employee’s termination;
- Whether the parties executed the agreement freely; and
- Whether they had the relevant knowledge and information regarding the discharge agreement.
What is the effect of this position?
In conclusion, these agreements are only valid if the employee had all knowledge and information of the contents of the agreement and where it is proved that they were not coerced or unduly influenced into signing the Agreement. Additionally, an employer is bound to strict compliance of the provisions of the Employment Act 2007 regardless of signing a discharge agreement. The mere existence of a discharge agreement neither bars an employee from seeking redress nor takes away the Court’s authority to query the lawfulness of termination of an employment contract.