Termination Agreements – Validity

On March 27, 2006 in re: "Filippo, Andrés Santiago vs. Siembra A.F.J.P.”, Tribunal VII of the Court of Appeals in Labor Matters found that the termination agreement does not apply to the employee as the matters of fact that surrounded the entering into of the agreement denote it was a decision made exclusively by the company.

1.         Background

Section 241 of the Law of Employment Contract establishes that one of the forms of termination of the employment relationship is by way of mutual agreement between parties. In order to be valid this agreement must be entered into by notarized document or recorded before the judicial or administrative authority.

In this case the parties entered into a termination agreement under the provisions of Section 241 of the Law of Employment Contract in a notarized document and a sum of money was paid that was applied initially to cover any item or balance that could have arisen or were to arise from the employment relationship or the termination thereof, including any other indemnity whatever the applicable legislation.

Subsequently, the employee filed a labor claim against the company for severance pay on account of wrongful dismissal.

2.         The decision

Tribunal VII understood that the fact that the employee was paid indemnity as a result of cessation of employment indicated that said employee had been dismissed without cause as no-one pays indemnity “on account of cessation” unless there is a clear and concurrent disposition to dismiss the employee.

Lastly, Tribunal VII decided that the doctrine set down by the Supreme Court in "Gatarri" does not prove applicable as the institute of compensation cannot be applied because payment cannot be expected of a debt of which the existence and amount is still unknown. Although the agreement entered into by the parties established that the payment was to be applied, first of all, to cover any item or balance that could have arisen or were to arise from the employment relationship or termination thereof, Tribunal VII understood that said payment cannot be held to be cancellation, in advance, of an obligation the existence of which was not known.

Tribunal VII has acknowledged an exception to the rule set down by the Court of Appeals in Labor Matters in that the termination agreements entered into before an administrative authority or before a Notary Public are valid as "res judicata" provided their authenticity has not been challenged on grounds of ignorance or error.