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Settlement agreements - PART 1

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Game over for the employee or just a hindrance?

Employees who have signed settlement agreements often find their CCMA claim shattered before it starts. A settlement agreement, in principle, constitutes a waiver of the employee’s rights and therefore renders a dispute non-existent and the CCMA is subsequently without jurisdiction. Many employers, labor practitioners and advisors make use of settlement agreements at the end of the employee’s tenure as a way to eliminate further disputes often under the misapprehension that the agreement makes them untouchable.

Does that then leave the employee with out recourse?
The agreement itself does not preclude the employee from referring a dispute; it does however offer the employer a defense, which can be raised at the arbitration. It is important to note that the Commissioner must consider the point raised, before proceeding with the matter. Some Commissioners will often bring a matter to a close, prematurely, and rule that there is no dispute and therefore no jurisdiction. This type of decision-making can be reviewed, but nonetheless leaves the employee in the wilderness until such time as the matter can be decided in the Labour Court.

The commissioner’s primary task is to decide if there is still a dispute, or rather is the settlement agreement a genuine good faith agreement. The onus is on the referring party to prove the existence of a dispute and the Commissioner may rule to hold a separate hearing or make a decision at either conciliation or arbitration stage.

What factors are considered in determining if a settlement agreement is what it purports to be?

The commissioner needs to consider three factors:
1. Is the dispute that is before the Commissioner the same as that which the settlement agreement refers to?
2. Is the settlement agreement really a settlement agreement?
3. Did the settlement agreement actually result in the dispute being settled?

In First National Bank Ltd (Wesbank Division) v Mooi NO & others (2009) 30 ILJ 336 (LC) the employee was dismissed and whilst waiting for an internal appeal FNB agreed to provide a certificate of service that gave as reason for termination, voluntary resignation. The parties then entered into an agreement on the basis of a voluntary resignation and that he would have no further claims against the bank.

The employee then referred a dispute and claimed that he had entered into the agreement on the basis of “Justus error” and he labored under the mistake that the certificate of service would only be forthcoming if he entered into the agreement. He also claimed that he was pressurized. The commissioner found that the agreement was not in full and final settlement because “neither party conceded anything outside the statutory law” and because FNB received a benefit from an agreement that “took away a lot and gave very little in return.”

Where the employee signs a settlement and in essence surrenders a number of rights and for little or nothing in return, it provides compelling evidence that the employee either did not understand the consequences of the agreement and/or was compelled in some form to sign, both of which in terms of contract law would render a contract null and void.

The opposite occurred in PPWAWU & others v Delma (Pty) Ltd, where the employee had received monetary compensation for signing the agreement, the court then, however, refused to accept the argument that the employee could therefore not approach the court for relief and allowed the dispute to be heard.

However, most courts are prepared to entertain this argument, which is in accordance with the Labour Relations Act, which encourages the settlement of disputes, by negotiation and agreement. The court should investigate whether there was a settlement and whether the agreement, which led to the settlement, was a voluntary and informed agreement.

It should be noted that it is not an essential element of the agreement that the employee must receive compensation, it is merely one indicator of the genuineness of the agreement. Employers should then seek to ensure that the circumstances surrounding the signature of the agreement point to an environment whereby the employee is given time to consider and reflect on the contents and consequences of their signature. Of course, where the employer is seeking to force the employee to enter into the agreement, they are loath to allow them a day to decide, but a clause to the effect that the employee was given an opportunity to seek advice will carry serious weight in demonstrating good faith and that the agreement was concluded by agreement and not force. [For further information on duress and undue influence see Part 2]

In conclusion, a settlement agreement does not automatically eliminate an employee’s right to refer a dispute and an employer should be prepared to argue the content of the agreement and pay careful attention to the drafting of the agreements.

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