Employment relationships do not always end through resignation, dismissal or redundancy. Sometimes, an employer and employee agree that it is in their mutual interest to bring the employment relationship to an end on negotiated terms.This arrangement is commonly referred to as a Mutual Separation Agreement (MSA).

Mutual separation agreements are particularly relevant where an employer wishes to facilitate an amicable exit, including situations involving senior executives, long-serving employees, organisational transitions or changes in business direction. While these agreements may offer a dignified and less confrontational way of ending employment, they also carry significant legal and financial implications.

An employee may be offered an attractive separation package, but the amount offered is only one part of the agreement. The conditions attached to payment, the rights being surrendered and the obligations that continue after employment are equally important.

1. What Is a Mutual Separation Agreement?

   A Mutual Separation Agreement is a legally binding agreement between an employer and an employee to terminate their employment relationship on mutually agreed terms.

   It ordinarily addresses the separation date, financial settlement, outstanding employment benefits, handover obligations, confidentiality, references and the settlement of claims arising from the employment relationship. Unlike unilateral termination, mutual separation is founded on the consent of both parties.

   However, consent must be genuine. An employee should not be compelled to sign an agreement under threats, coercion, undue influence or unreasonable pressure.

2. Are Mutual Separation Agreements Recognised Under Kenyan Employment Law?

   Yes. Although the Employment Act, 2007 does not expressly provide a separate statutory procedure for mutual separation agreements, Kenyan courts recognise that an employment relationship may lawfully be terminated by mutual consent.

   Such agreements are governed by general principles of contract law, applicable employment legislation and judicial interpretation. The important consideration being whether the parties genuinely agreed to the separation and understood its implications.

3. How Is Mutual Separation Different from Resignation, Redundancy and Unfair Termination?

   These are distinct legal concepts, and the distinction matters;

   Resignation – Ordinarily occurs when an employee voluntarily decides to leave employment, subject to the applicable contractual and statutory notice requirements.

   Redundancy – Concerns involuntary loss of employment where the employee’s services become superfluous through no fault of the employee.

   Unfair termination– Employment Act addresses the employer’s obligation to justify termination and demonstrate fairness. Where termination is found to be unfair, the Act provides remedies, including compensation of up to 12 months’ gross wages, depending on the circumstances.

   Mutual separation – is a negotiated exit. The parties agree on the terms under which the employment relationship will end. It is not automatically a redundancy or an unfair termination. Equally, an employer cannot necessarily avoid statutory obligations by describing what is substantively a redundancy or involuntary dismissal as mutual separation. The actual circumstances surrounding the departure remain relevant.

4. Is an Employee Entitled to 12 Months’ Salary Under a Mutual Separation Agreement?
   Not automatically.

   One common misconception is that an employee who signs a mutual separation agreement is entitled to 12 months’ salary. It is a discretionary judicial remedy, not an automatic entitlement and not a statutory formula for mutual separation. In a genuinely separation, the financial package is ordinarily determined by agreement between the parties, subject to applicable legal entitlements.

   Relevant considerations may include:

   1. Length of service and seniority.
   2. Contractual entitlements and outstanding benefits.
   3. The circumstances leading to the proposed separation.
   4. The employee’s responsibilities and future employment prospects.
   5. The value of obtaining a final and amicable settlement.

5. What Should an Employee Look Out for Before Signing?

   This is the most important part of any mutual separation arrangement. Look at the finer details.

   1. Payment timelines and conditions

      An agreement may provide for payment of terminal dues only after the employee has completed a satisfactory or proper handover. But what constitutes a satisfactory handover? What happens where the handover involves an ongoing audit, regulatory investigation or another process outside the employee’s control? Could payment be delayed because the employer considers the handover incomplete? A properly negotiated agreement should establish clear payment timelines, objective handover requirements and reasonable mechanisms for resolving outstanding issues.

   2. Waiver and discharge of claims

      Most mutual separation agreements contain clauses requiring an employee to release the employer from claims arising out of the employment relationship. Such clauses may extend to contractual claims, statutory claims and disputes relating to the termination.

      The employee must therefore understand precisely what rights are being surrendered.
      Where appropriate, the agreement should expressly preserve the employee’s right to enforce its terms and address what happens if the employer fails to make the agreed payments. An employee should not surrender valuable legal rights without understanding what they are receiving in return and when they will receive it.

   3. Taxation and statutory deductions

      The tax treatment of a separation package can materially affect the amount ultimately received. Salary arrears, accrued leave, severance pay, gratuity, pension benefits and compensation for loss of office may have different legal and tax implications.

      The classification of a payment should reflect its true legal nature and the applicable tax legislation. Before signing, employees should seek clarity on the gross settlement amount, applicable deductions and expected net payment. Where necessary, independent tax advice should be obtained.

   4. Pension and other employment benefits

      An agreement should clearly address accrued leave, pension entitlements, outstanding remuneration and other contractual benefits. Where pension benefits are administered by a separate retirement benefits scheme, the agreement should also address the employer’s obligations in facilitating the employee’s access to benefits, subject to the scheme rules and applicable law.

   5. Confidentiality and non-disparagement

      Confidentiality clauses commonly restrict the disclosure of sensitive business information. Non-disparagement clauses may restrict statements that could harm the reputation of the employer or employee. These provisions should be carefully considered, particularly where they impose obligations that continue long after employment has ended. Appropriate exceptions should be made for disclosures required by law, court orders and lawful regulatory processes. Where appropriate, non-disparagement obligations may also be made mutual.

   6. References and professional reputation

      For senior and long-serving employees, professional reputation is an important consideration. A separation agreement should address the issuance of a Certificate of Service under Section 51 of the Employment Act. The parties may also negotiate a separate professional reference, the agreed description of the departure and the manner in which the separation will be communicated internally or externally. A well-managed exit should protect not only the employee’s financial interests but also their future professional opportunities.

   7. Can an Employee Challenge a Mutual Separation Agreement After Signing?

      Yes, in appropriate circumstances, although successfully challenging an executed agreement may be difficult. Kenyan courts have generally recognised and enforced genuine mutual separation agreements. However, an agreement may be challenged where there are legally sufficient grounds, including coercion, undue influence, misrepresentation or lack of genuine consent. Courts have emphasised that mutual separations must be genuinely voluntary, not merely presented as voluntary on paper.

      Employees should therefore be given reasonable time to consider the proposed terms and obtain independent legal advice before making a decision.

   8. Why Should Employers Also Obtain Legal Advice?

      Mutual separation agreements are not only about protecting employees.
      For employers, a properly negotiated and drafted agreement can facilitate an orderly transition, minimise disruption, protect confidential information and reduce the likelihood of future disputes. However, poorly drafted agreements, unreasonable conditions or pressure exerted during negotiations may create legal exposure. Employers should ensure that the proposed separation is genuinely consensual, that contractual and statutory obligations are properly addressed, and that the terms are clear and capable of implementation. A properly structured agreement provides certainty to both parties.

   9. Why Legal Review Matters Before Signing

      At P. A. KWEGA & CO. ADVOCATES, we emphasise the importance of reviewing employment agreements before execution. A legal review goes beyond checking whether the amount offered is reasonable. It involves examining the agreement as a whole, identifying legal and financial risks, advising on the employee’s rights and obligations, and where necessary negotiating amendments that protect the client’s interests. Sometimes, the most important amendment is not an increase in the settlement amount. It may be securing a definite payment date, removing an unreasonable condition, clarifying the scope of a waiver or protecting the employee’s professional reputation. These details can make a significant difference.

   Conclusion

   Mutual separation agreements are a lawful and useful mechanism for ending employment relationships in Kenya. However, the fact that an agreement is described as mutual does not mean its terms are automatically fair, balanced or favourable to both parties. Whether you are an employer proposing an amicable separation or an employee considering an exit package, it is important to understand the legal implications before signing. A good separation agreement should not merely bring an employment relationship to an end. It should provide certainty, protect the parties’ respective interests and minimise the possibility of future disputes. Before signing, seek independent legal advice.

   Need assistance with a Mutual Separation Agreement? Talk to us!

   P. A. KWEGA & CO. ADVOCATES advises employers, employees and senior executives on employment law, contractual reviews, negotiated exits, separation agreements and employment disputes. We assist clients with reviewing proposed separation terms, identifying legal risks, negotiating appropriate protections and finalising agreements.

   **Disclaimer: This article is intended for general legal information and does not constitute legal advice on any particular employment relationship.**

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