Ending an employment relationship can be an onerous task for an employer who is required to comply with the stringent requirements of the law before dismissing an employee from employment. Under section 47(5) of the Employment Act, an employee bears the initial burden of proving that termination occurred, after which the heavier burden shifts to the employer to demonstrate that the termination was both procedurally and substantively fair. The implication is that any process for termination of employment termination poses a potential legal risk for the employer. 

However due to the varied circumstances leading up to termination of employment, including urgency, sensitivity, profile, expediency, confidentiality and other nuanced business considerations, some employers and employees agree to mutually terminate the employment relationship.

There is no provision for mutual separation in the Employment Act and parties to such arrangements are left to their own devices subject to compliance with the normal requirements of a valid contract and principles set out in case law.

The judgment of the Employment & Labour Relations Court (ELRC) in confirming that an employment relationship can be ended by mutual termination in Alfred Nzomo Kithusi v Hillcrest Investments Limited [2021] eKLR stated in part that “employment is not a marriage and as such it can be dissolved by consent of the parties to an employment contract through mutual agreement on the basis of mutual undertaking between them for example waiver of claims, confidentiality, future cooperation among others.” 

Justice Nzioki wa Makau in his book “ Labour Law & Industrial Relations in Kenya” 2021 states at page 130 regarding termination of employment contracts by mutual consent that:

“Either party to an employment contract can initiate the termination of an employment contract. Under this from of termination, no grounds are required. The termination involves the act of two contracting parties wishing to end their contract on their own terms and without an external assessment of the legitimacy of the reasons thereof by an administrative body”

Kenyan courts have on various occasions interpreted mutual separation agreements in claims filed by employees whose employment was terminated through mutual separation agreements. The ELRC has repeatedly held that the courts will enforce the terms of a mutual separation agreement provided it has all the ingredients of a valid contract being offer, acceptance and consideration and that the agreement was made freely without any misrepresentation, duress or coercion.

This position was stated in Zaidi v Lake Turkana Wind Power Limited (Cause  E321  of  2022)  [2023] KEELRC 3414 (KLR) where the court held that:

“It is not uncommon that a contract of service can be ended through a mutual separation agreement between the parties. The agreement could set out the terms and conditions of the separation. The same being a contract between the parties must possess the ingredients of a valid contract, absence of the ingredients shall render its validity assailable in a court of law or any other appropriate forum.”

The claimant in Mboya v AIG Kenya Insurance Co. Ltd [2023] KEELRC 2261 (KLR) contended that a mutual separation agreement leading to termination of the contract of employment could not be enforced by the court as the contract of employment did not specifically provide for this mode of termination.

The ELRC in dismissing the claim held that “the fact that the parties did not specifically state in the contract that they could mutually close the contract did not take away their power to mutually close the contract.”

In Wokabi v British American Tobacco Kenya Limited [2022] KEELRC 12694 (KLR) the claimant filed suit against the respondent for constructive dismissal which amounts to unfair termination on the basis that the mutual separation agreement signed leading to the end of the employment relationship was signed under duress and coercion. However, the claimant confirmed receipt of a payment of Kshs.10 Million in respect of the mutual termination. The court considered the terms of the agreement. The court in dismissing the claimant’s claim held that:

It was agreed that payment was in full and final settlement of all and any claims or rights of action that the claimant.

The mutual agreement is comprehensive and left the claimant no room to wriggle out.

The claimant initiated the agreement through his letter of resignation and was given the opportunity to seek legal and non-legal advice, before execution of the agreement.

Allowing the claim would allow the claimant to be unįustly enriched.

Where a valid mutual separation agreement has been entered into by the parties, it will be binding on both the employee and the employer. Any payments due to the employee by the employer under such an agreement will be enforced by the court. This was the case in Ndegwa v National Environmental Trust Fund [2024] KEELRC 1288 (KLR) where the ELRC ordered the respondent to make the payments that were due to the claimant under the mutual separation agreement held that “It is trite that a contract comes into existence when an offer by one party is unconditionally accepted by the other and the parties must have intended to create a legally binding agreement, some consideration must pass.”

The ELRC has, however, also held that a mutual separation agreement, as expressed in its name, must be mutual and entered into voluntarily. In Pauline Waigumo Muthiga v Diamond Trust Bank Ltd [2021] eKLR the ELRC set out the principles applicable in considering the validity and enforceability of such agreements including the following:

As a general principle a pretrial settlement operates as a contract between the parties.

It is to be considered as generally binding on the parties unless it is assailed on the usual grounds that will vitiate a contract.

In order to determine whether the pretrial settlement operates as a bar to further claims by the parties to it, a trial court or other arbiter must consider: the import of the settlement; whether the parties executed the agreement freely; and whether they had relevant information and knowledge regarding the settlement.

The decision of the ELRC in Gatobu v Tullow Oil Kenya Limited [2025] KEELRC 1786 (KLR) emphasizes the need for mutuality in such agreements. In that case the court found that the claimant had been offered a mutual separation agreement by the respondent after some strain in the employment relationship and the claimant refused to sign this. Afterwards, the respondent initiated a disciplinary process that culminated in the termination of the claimant’s employment for alleged breach of the respondent’s policies. The court held that such termination was unfair and awarded 12 months’ salary.

From the decisions of the courts discussed above, it is clear that mutual separation agreements are a valid and enforceable way of terminating employment agreements provided they meet the legal requirement of a valid contract. It is incumbent upon employers to ensure that these requirements are met to avoid any claims to vitiate mutual separation agreements and that once signed, the obligations of the parties are met.