Is an employer bound by a settlement agreement concluded after the employees have been transferred to the new employer? This is the question that the Labour Appeal Court had to answer in the matter between Fleet Africa (Pty) Ltd v Nijs  5 BLLR 450 (LAC).
When the old employer (Fleet Africa) lost two major contracts, it commenced retrenchment consultations in terms of section 189 with some of its employees. At the same time, a dispute concerning whether some of its employees would transfer to the new employer in terms of section 197 of the LRA was being arbitrated. While the arbitration proceedings were still in progress, the old employer concluded a settlement agreement with its employees, including Ms. Nijs in terms of which she was to accept a voluntary retrenchment package. The arbitrator then ruled that the old employer’s employees were automatically transferred to the new employer in terms of section 197. In light of this outcome, the old employer sought to cancel the settlement agreements on the ground that there was no employment relationship between it and the employees when it was signed.
The settlement agreement was the product of a consultation and negotiation between the old employer and the employees, aimed at fulfilling the objections laid out in section 189 of the LRA. However, this process did not just pop up without there being any dispute between the parties which, at the time, had not been resolved.
The settlement agreement was one envisaged by section 158(1)(c) of the LRA, “a written agreement in settlement of a dispute that a party has a right to refer to arbitration or the Labour Court”. The only question was whether there was a dispute between the parties when it was signed. At the time, there had been a long dispute between the parties. The arbitration and consultation processes had a common objective aimed at resolving the same dispute. The Court noted further that section 197 provides that the new employer is automatically substituted for the old employer unless otherwise agreed in terms of section 197(6) between the old and/or new employers, on the one hand, and a person or body referred to in section 189(1). The words “unless otherwise agreed” envisage that the parties to a dispute concerning section 197 may resolve it by means of a settlement agreement. The dispute between the old employer and the employee was concluded in full and final settlement of any claims arising from, inter alia, an entitlement to a transfer in terms section 197.
Once the settlement agreement was concluded, the arbitration process should have halted, because the employee was no longer entitled to be transferred and obtain a “double benefit”. In the present case, therefore, once the parties concluded the settlement agreement, the employment relationship between the old employer and the employee ceased to exist and that the settlement agreement disposed of the dispute between the old employer and the employee. The transfer of the business dispute also ceased to exist.
Even though the arbitrator found that the employees had transferred automatically to a new employer, the LAC found that the Settlement Agreement was binding and there was indeed an employer-employee relationship between the old employer and the employee.
Employers should understand that by signing settlement agreements, they are bound by the terms of the agreement.
Article by: Anesta Kruger
Dispute Resolution Official – Durban