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03 Aug 2021
BY Themba Maduna

When can the Labour Court make a settlement agreement an order of court?

To avoid a complicated and lengthy disciplinary proceeding, employers might consider a mutual separation agreement, to terminate an employee’s employment and pay them a sum of money. In the case of Balsdon v Valley Macadamias Group (Pty) Ltd, the Labour Court had to decide whether it could make a mutual separation agreement a court order in terms of the Labour Relations Act, 1995 (“LRA”).

In this matter, the applicant employee, Mr Balsdon, was suspended by Valley Macadamias Group (Pty) Ltd on charges of insubordination and a breach of the duty to act in good faith pending a disciplinary hearing. At his suggestion, he agreed with Valley that he would be retrenched and be paid an amount equivalent to four months’ remuneration payable in three equal instalments. The agreement also included confidentiality and restraint of trade undertakings. In particular, the agreement provided that Mr Balsdon could not solicit competing business from a customer or supplier of the employer for 24 months.

It later came to Valley’s attention that Mr Balsdon had joined one of its competitors, Green Farm Nut Co. Valley was informed that Mr Balsdon had implied to a client that they should purchase processed nuts from Green Farm and not from Valley. On the day that this came to the attention of Valley it was expecting to receive deliveries from two of its suppliers. These deliveries did not arrive. When the two growers were contacted, they indicated that they would be delivering the nuts to the competitor, Green Farm.  

As a result of Mr Balsdon’s actions, Valley alleged that it had suffered a loss of ZAR2.6-million and instituted proceedings against Mr Balsdon to recover this loss. It also refused to pay monies owed to Balsdon in terms of the mutual separation agreement.

Mr Balsdon approached the Labour Court for the mutual separation agreement to be made an order of court in terms of the LRA, which states that “settlement agreements” can be made an order of the court. The LRA defines a settlement agreement as a written agreement in settlement of a dispute that a party has the right to refer to arbitration or the Labour Court, with some exceptions.   

The Labour Court, following the decision of the Labour Appeal Court (“LAC”) in Greef v Consol Glass (Pty) Ltd, stated that a settlement agreement must satisfy the following requirements:

  • It must be in writing.
  • It must be in settlement of a dispute; ie, it must have as its genesis the settlement of a dispute;
  • The dispute must be one that a party has the right to refer to arbitration or to the Labour Court for adjudication in terms of the LRA; and
  • The dispute must not be one that constitutes one of the exceptions stated in the LRA

The court held that an agreement to terminate employment could not be regarded as a dismissal. Therefore, the agreement between the parties did not relate to any unfair dismissal claim that might be arbitrated or adjudicated in terms of the LRA.

In addition, there was no dispute between the parties at the time that the agreement was concluded. There was also certainly no dispute that could be arbitrated or adjudicated in terms of the LRA. All that occurred was that Mr Balsdon proposed that he be paid a sum of money after being required to attend a disciplinary enquiry. The only dispute that could exist was that Mr Balsdon denied that he was guilty of the disciplinary charges levelled against him in the notice to attend a disciplinary enquiry. However, because of the settlement of the matter, it went no further. There was no disciplinary hearing, and the applicant was not dismissed. The result was that there was no dispute in respect of which Mr Balsdon and Valley had the right to refer to arbitration or adjudication as required by the LRA.  

The court stated that, even if this finding was incorrect, it had discretion whether or not to make a settlement agreement an order of the court. The court exercised its discretion in favour of not granting an order. It did so primarily on the basis that it would be difficult to hold Valley in contempt of the court order in the face of a genuine dispute about the terms of the agreement, which had already been referred to the Labour Court by Valley. The court further held that Mr Balsdon was not without a remedy. He could institute civil proceedings based on an allegation that Valley had breached the agreement by refusing to pay him the amount owed in terms of the agreement.  

Comment

The Greef decision is authority for the view that the requirement that the dispute must be one “that a party has the right to refer to arbitration or to the Labour Court for adjudication in terms of the LRA” should not be narrowly interpreted and should not be limited to disputes that have already been referred to the Commission for Conciliation, Mediation and Arbitration and in respect of which a party has become entitled to refer the dispute to arbitration or adjudication. All that is required is that the dispute is of such a nature that it could potentially be referred to arbitration or adjudication, provided that all the requirements set by the LRA have been met. The right of referral envisaged here need not be legal right capable of immediate exercise.

The Balsdon decision could perhaps be faulted in that it did not take this aspect of the Greef decision into account. But perhaps  the more important facet of this decision is its emphasis on the principle that, even if the requirements set out in the LRA have been met, the court retains the discretion not to make the agreement an order of court, especially where the employee has another remedy at their disposal.

Reviewed by Peter le Roux, an Executive Consultant in ENSafrica’s Employment department.

Themba Maduna
Employment | Candidate Legal Practitioner
tmaduna@ENSafrica.com
+27 67 415 8059