Does the LRA’s limit on compensation apply to Settlement Agreements?

By Neil Coetzer, Partner, Employment Law, Benefits & Industrial Relations, Cowan-Harper Attorneys:  The Labour Relations Act 66 of 1995, as amended (“the LRA”) has as one of its primary objectives the promotion of the effective resolution of disputes. 

The adoption of a mandatory process of conciliation in respect of disputes under the LRA seeks to achieve this goal and has led to the resolution of many disputes through the conclusion of settlement agreements. The LRA even permits those settlement agreements to be converted into arbitration awards in terms of section 142A.

However, in a recent judgment the Labour Court found that if the parties wished to have such a settlement agreement converted into an arbitration award, the settlement figure contained in a settlement agreement could not exceed the limits on compensation set out in section 194 of the LRA.

In Lekwa Local Municipality v South African Local Government Bargaining Council (SALGBC) and Others (2017) 38 ILJ 190 (LC) the employee and the employer concluded a settlement agreement at the CCMA on 10 December 2013. The terms of the agreement were that the employer agreed to pay the employee an amount of R1 674 149.49 in settlement of the employee’s claim of constructive dismissal. As the employee’s annual salary was approximately R300 000.00, the settlement amount was substantially more than the statutory limit of 12 months’ compensation which the employee would have been entitled to if she had been found to have been unfairly dismissed by the employer.

The employer however failed to perform in terms of the settlement agreement and accordingly the employee applied to the CCMA to have the agreement made an arbitration award in terms of section 142A of the LRA. The employer opposed the employee’s application, but due to the fact that it calculated the time periods for filing an opposing affidavit in a different manner to the CCMA, the application was heard on an unopposed basis. The Commissioner who considered the application accordingly made the settlement agreement an arbitration award on 25 April 2014. The employer addressed a letter to the CCMA in which it requested that the award be rescinded. The CCMA was not inclined to rescind the award and consequently the employer approached the Labour Court to have the award reviewed and set aside.

In the Labour Court the employer argued that the settlement agreement which formed the basis of the award was invalid and unenforceable since the person who represented the employer at the CCMA, an employee named Marongo, was not authorised to settle the dispute or conclude any agreement on behalf of the employer. The employer contended that the Municipal Council was the only body authorised to take such a decision. The employee was unable to disprove these allegations but insisted that Marongo had many interactions with the employee and suggested that she had a reasonable belief that Marongo had received instructions to settle the dispute at the CCMA. The Court found that Marongo did not have the necessary authority to conclude the settlement agreement on behalf of the employer. One of the reasons for reaching this conclusion was the ‘absurdity’ of the terms of the settlement agreement, namely the agreement to pay the employee approximately five times her normal annual salary.

The Court then dealt with the arbitration award itself and found that section 142A of the LRA does not permit commissioners to simply accept anything agreed to by the parties and then proceed to have it made an arbitration award. The Court found, with reference to the Constitutional Court case of Eke v Parsons 2015 (11) BCLR 1310 (CC), that an award in terms of section 142A had to be both competent and proper. The Court found that the award contained clauses that were objectionable from ‘both a legal and practical point of view’ as they were contrary to section 194 of the LRA and public policy. Section 194 of the LRA clearly defines the limits of compensation which can be awarded in terms of an arbitration award and a commissioner was not empowered to issue an award for compensation which exceeds the limits set out in section 194 (i.e. 12 months).

The Court accordingly found that the commissioner had committed a reviewable irregularity and set aside the arbitration award.  The Court also, somewhat curiously, ordered that the dispute be referred back to arbitration to be arbitrated by the CCMA. The Order made by the Court is peculiar since it made no finding on the validity of the settlement agreement concluded between the employee and the employer and accordingly the settlement agreement remained in operation. Therefore, even though the matter was referred back to the CCMA to be arbitrated, it is unlikely that the CCMA would have done so since it has no jurisdiction to arbitrate a dispute which has been settled.

Nevertheless, it is important for parties who intend to settle their disputes at the CCMA to understand that the LRA imposes limitations on the amounts of compensation which may be awarded for various disputes. Both employers and employees should therefore approach the negotiating table on a rational and practical basis, using the provisions of section 194, and various other factors, as a basis for considering the appropriateness of any offer of settlement. Parties who represent the employer or employee at the CCMA must also ensure that they are properly mandated to conclude settlement agreements on behalf of their principals, failing which difficulties could arise.

For more information please contact Neil Coetzer at or (011) 783 8711 / (011) 048 3000

Article published with the kind courtesy of Cowan-Harper Attorneys

Share Button

About southcapenet

Adding value to my domain hosting and online advertising services.
View all posts by southcapenet →