Does an allegation that a representative lacked the necessary authority to settle a dispute render that settlement agreement null and void?

Settlement agreements are an integral part of the dispute resolution process. Whenever there is a dispute, whether in the CCMA or internally in the workplace, the parties to the dispute are encouraged to settle disputes to avoid drawn-out and costly dispute processes. Parties can negotiate independently or get representatives to negotiate on their behalf. In the case where there are representatives, it is usually accepted that they are empowered to negotiate and conclude settlement agreements on behalf of the parties in accordance with the instructions of those they represent; this is referred to as a mandate.

Once a settlement agreement is concluded, it is binding on the parties regardless of whether it was signed by the parties or their representatives. What happens then if one party disputes the validity of the settlement agreement on the basis that their representative acted without and outside their mandate?

The Labour Court in Khumalo v Industrial Development Corporation of South Africa and Another (J1233 /2020) [2023] ZALCJHB 303 had to deal with the question of whether to set aside a settlement agreement and declare it void because the applicant alleged that her representative acted without mandate. In this case, the employer charged the employee with misconduct and scheduled a hearing. The employee appointed an attorney to represent her in the disciplinary hearing.

The employee approached the Labour Court seeking an order declaring that she was still employed by the employer and that the settlement entered should be declared null and void; in the alternative, the settlement agreement should be set aside. She sought this order on the grounds that her attorney acted against her instructions and without authorisation when he accepted a settlement of six months’ compensation in a mutual separation agreement, which ended her employment. The court accepted that the employee was not denying the existence of the settlement; she was only challenging the mandate of her attorney to enter into the settlement agreement on her behalf. Thus, the issue to be decided was whether her attorney had a mandate to settle the dispute and to accept the mutual separation agreement, offering six months’ compensation.

The employee stated that, in August 2020, she instructed her attorney to propose a mutual termination to the employer where they would pay her twelve months’ salary and a university bursary for her daughter. On the 21st of October 2020, the employer’s attorneys made a counter proposal of three months’ salary and a resignation with immediate effect. On the 22nd of October 2020, there was a WhatsApp conversation between the employee and her attorney where she stated that an offer of nine months’ salary could be palatable. On the 23rd of October, 2023, her attorney informed her that he had settled on six months’ compensation, and the offer was accepted. Then, he withdrew as an attorney of record on the 26th of October 2020. On the 27th of October 2020, the employee informed the employer’s attorneys that her attorney had exceeded his mandate and she wanted to continue with the disciplinary hearing. Still, they refused on the basis that the matter was settled.

The employer stated that the employee was at all material times represented by the attorney, and they were entitled to rely on the representations the attorney, as her legal representative, made on her behalf. The offer made by the attorney was accepted, and a binding offer came into being.

The attorney stated that on the 22nd of October 2020, the employer was still offering three months. He obtained instructions from the employee, and she declined the offer of three months. He asked her if she would only accept twelve months, and she responded that she was hoping for six to nine months, but nine would be palatable. On this basis, he made a counteroffer of at least six months, which was still in line with the mandate.

The Court stated there is a difference between acting without a mandate and having a mandate but acting ‘without a proper mandate’, thus outside the mandate’s scope. It was common cause that the employee mandated her representative to enter discussions regarding settlement with the employer’s attorneys, with the view to settle the matter. It cannot be said that he acted without a mandate when he settled the matter on the employee’s behalf. It was evident that the attorney had a mandate to settle between six and nine months compensation; therefore, it cannot be said that in settling the matter, he had achieved an object that was not at all intended by the employee.

The Court was of the opinion that the attorney settled the matter within the parameters of his mandate. He had the authority to represent the employee at her disciplinary hearing. He was mandated to settle the matter on her behalf, and as such, he was entitled to enter into the agreement within the parameters of his mandate. The employer’s attorneys entered negotiations on the premise that the attorney was mandated to settle the matter, and the employer could not have known that the attorney acted without authority, as alleged by the employee.

Based on the above, the settlement agreement was not set aside. In addition to the fact that the employee was paid per the terms of the agreement, she made no tender to repay the monies she received. Without any tender to repay the monies she had received, she was not in a position to seek that the agreement be declared null and void or set aside.

The Court will not take an allegation of lack of authority and mandate at face value; the circumstances surrounding the negotiation and conclusion of a settlement agreement will be delved deeply into, and the facts of the matter will ultimately determine whether there was authority or a mandate given.

The takeaway from this case should be that parties need to have clear and written mandates for purposes of negotiating and entering into settlement agreements. A party that gives a mandate and later changes its mind after the conclusion of the settlement agreement cannot simply claim that its representative did not have the authority to conclude same, especially if the concluded settlement agreement falls within the ambit of the mandate given and the proceeds of the settlement were never returned.

Written by Buhle Masuku, Dispute Resolution Official at Consolidated Employers Organisation (CEO SA)