What you need to know before you sign the Voluntary Early Retirement agreement

Early retirement is one of the most commonly offered alternative to redundancy. Whether it is the best option for an individual must be considered on a case to case basis.

However, an employer should not force an employee to take up an early retirement option in the face of company restructuring as that would amount to unfair termination.

But it may be a viable compromise between the employee and the employer where for instance an employee suffers prolonged ailment or injuries that make it impossible for him or her to continue working without the employer making additional changes to accommodate the employee in the prevailing condition.

Now this is an additional expense on the employer which many employers are not happy to bare over a long period of time.

On the other hand terminating an employee on the basis of a physical disability would amount to discrimination and thus possible action for unfair termination.

Voluntary early retirement is no doubt the best option where an employee is face with imminent dismissal for an offense but pending the conclusion of a disciplinary process.

Such an employee may opt for an early retirement to avoid issues with future potential employers who may have a problem with an employee was fired or dismissed.

Explaining the circumstance surrounding a dismissal for a job seeker is equally not easy.

Furthermore, the employer may not be convinced by such explanations. So comparatively, early retirement is a better option under such circumstance.

To avoid the legal risks involving redundancy most employers offer voluntary early retirement to the employees as oppose to redundancy but this is not to say that VER is without its challenges.

Early retirement may seem tempting option particularly where the employer offers incentives. However, one must think through carefully to see whether it will be beneficial in the long run.

A dispute arises where an employee feels that by signing the VER agreement, he is left holding the shorter end of the stick. Although such actions have minimal chances of success, they are nonetheless a liability to the employer.

But what is the position in Law regarding voluntary early retirement?

In Kenya, the law provides that where an employee willingly applies for the VER on such terms as set out by the employer in the offer letter, circular or in the HR manual it is regarded as a new agreement between the employee and the employer.

The VER agreement is then taken as a separate and distinct contract from the HR manual and the initial contract of employment.

The employee cannot run away from it by claiming that its terms are less favorable than the terms offered under the HR manual or the contract of employment.

This position was adopted by the Court in the case of William Barasa Obutiti vs. Mumias Sugar Company Ltd [2006] eKLR, where it was submitted that parties are at liberty to contract outside the instrument (s) governing the employment relationship.

Therefore, an employee is bound by the terms of the VER scheme and it is not open to court to rewrite the terms of the contract. Similarly the court decided in the case of National Bank of Kenya Limited vs. Pipeplastic Samkolit (K) Ltd. & Another [2001] eKLR and held rightly so, that a court of law cannot rewrite a contract between parties.

The parties are bound by the terms of their contract unless coercion,fraud or undue influence are pleaded and proved. This simply means that an employee must understand the consequence of signing a VER agreement and that he or she is bound by the new terms notwithstanding the unevenness or unfairness of the new engagement.

It is also important to note that once an employee accepts the payment under the terms of the VER scheme, he is taken to have accepted the terms of the agreement as set out by the employer. He cannot accept the agreement in part by saying that it is good to the extent that it benefits him but drop it seem unfavorable.

This position was reached in the Indian case of State of Punjab & Others vs. Dhanjit Singh Sandhu - Civil Appeal No. 5698-5699 of 2009 where the Supreme Court of India noted that “based on the doctrine of election, no party can accept and reject the same instrument and that a person cannot say at one time that a transaction is valid and thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say it is void for the purpose of securing some other advantage.

Lastly, it is very important to consider the financial implications of early retirement carefully before accepting it as an alternative to early retirement.

The common problem associated with early retirement is that the pension is significantly reduced as compared to the amount that an employee would receive under full retirement age.

The uncertainty of the future is also another issue the employee must deal with because there is never a guarantee that there would be a cost of leaving adjustment. 

Oscar Onyango

[email protected]

0700578660