Invalid Settlement Agreements

Feb 12, 2020

Many employers and employees from time to time enter into settlement agreements for various reasons. However, it may be so that the agreement is invalid without the knowledge of the parties entering into such an agreement.

In August 2019 the Labour Appeal Court (LAC) emphasised an important point of law relating to the validity of settlement agreements. A settlement agreement is invalid if the parties were under a common misapprehension when they entered into it.

The LAC issued a judgment in a long-running rights dispute between Murray & Roberts (M&R) and the Association of Mineworkers and Construction Union (AMCU)

M&R failed to meet with AMCU to discuss granting AMCU organisational rights as requested, whereafter the union referred a dispute to the CCMA. In May 2014, in the conciliation proceedings at the CCMA, M&R raised a point to the effect that for AMCU to become entitled to the organisational rights it sought, it was legally required to become a member of the Metal and Engineering Industries Bargaining Council (MEIBC).

On the same day, AMCU and M&R entered into a settlement agreement in terms of which AMCU would withdraw its dispute and submit its audited membership figures to the MEIBC to become a member in order to obtain organisational rights. A year later, AMCU again sought organisational rights from M&R in respect of a different site. M&R did not respond to AMCU’s request and AMCU again referred the issue to the CCMA. At conciliation, M&R raised a jurisdictional point that the matter was res judicata (a matter that has been adjudicated by a competent court and may therefore not be pursued further by the same parties) and the CCMA upheld the preliminary point. AMCU then took the jurisdiction ruling and settlement agreement on review.

The Labour Court reviewed and set aside the settlement agreement and the jurisdiction ruling. M&R then took the Labour Court judgment on appeal to the LAC.

Effect of ‘common mistake’

The LAC agreed with the Labour Court that the settlement agreement was invalid because both M&R and AMCU had made a ‘common mistake’ when entering into it. This was because both had assumed the wrong legal position regarding the nature and effect of the threshold agreements supposedly applicable to AMCU’s request for organisational rights. The settlement agreement was therefore based on that wrong assumption of the law. The LAC said that had AMCU known what the true legal position was, it would not have entered into the settlement agreement.


Wallace Albertyn

Wallace Albertyn is a Senior Associate and Legal Advisor at LabourMan Consultants.

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