A guide to golden handshakes: Legal tips for untarnished employee exits
A “golden handshake” is often used to describe a severance package - particularly a substantial one - which may not be directly tied to contractual obligations or severance benefits.
Image source: rahultiwari3190 – 123RF.com
These golden handshakes usually exceed statutory minimums - a generous offer in exchange for a smooth departure. Yet, beneath the allure of immediate financial relief lies a complex South African legal landscape where missteps can trigger costly disputes and reputational damage.
While there isn't a specific law directly governing golden handshakes in South Africa, our courts have upheld golden handshake arrangements provided they are entered into freely, with full disclosure, and are not unlawful or unconscionable, explains Advocate Tertius Wessels, managing director at Strata g Labour Solutions.
Voluntariness and full understanding
Agreements should be entered into voluntarily, without any form of coercion or duress. It is essential that employees fully understand the terms and implications of the agreement, which may often require providing independent legal advice to ensure informed consent.
Fair consideration
The "golden" element of the agreement must represent fair compensation for waiving potential rights. This assessment should consider factors such as the employee’s length of service, future employability prospects, and the circumstances surrounding their departure. Transparency in the calculation of entitlements fosters trust and clarity.
Comprehensive settlement
A well-drafted agreement should explicitly resolve all potential claims related to the employment relationship or its termination. This comprehensive approach helps protect the employer from future litigation by ensuring all relevant issues are addressed.
Clear confidentiality and non-disparagement clauses
Mutually beneficial confidentiality and non-disparagement provisions can be effective when they are reasonable, clearly defined, and serve legitimate interests. Properly structured clauses help prevent damaging disclosures without overreach.
What to avoid?Pressure and coercion:
An employee should not be pressured or coerced into signing an agreement. If an employee is compelled to agree to the termination under duress, intimidation, undue influence, or without fully understanding the implications of the agreement, it undermines the voluntary nature of the employee’s consent. Employees who believe they were coerced can seek legal recourse to challenge the validity of the agreement.
Labour Law & Unions
Are employees entitled to severance pay? Not necessarily...
Jacques van Wyk and Michiel Heyns 17 Feb 2023
Ambiguity and omission:
Employers should avoid ambiguity and omission in agreements to ensure legal clarity and enforceability, preventing disputes over interpretation that could lead to invalidation. Clear terms help avoid misunderstandings, reduce the risk of costly legal conflicts, and protect the employer’s interests by explicitly defining entitlements, obligations, and post-employment restrictions.
Additionally, precise agreements promote compliance with legal requirements, facilitate a smooth transition, and minimize financial and reputational risks by avoiding unexpected liabilities and maintaining a fair process. Overall, clarity and completeness in these agreements are essential for a lawful, efficient, and amicable termination.
“Too often, employers view golden handshakes as a simple financial transaction, neglecting the rigorous legal requirements for validity. The perception of voluntariness is paramount. True settlements require meticulous drafting, genuine negotiation, and absolute transparency.”
“For CEOs and HR professionals, the message is clear: while golden handshakes offer a valuable tool for managing exits, their success hinges on strict adherence to labour law principles. Professional legal guidance is not a luxury, but a necessity to transform a potential legal minefield into a secure and dignified parting of ways,” concludes Wessels.