The Constitutional Court has determined that full and final settlement clauses, when concluded in the correct circumstances, are lawful and binding. While such full and final clauses may be useful, it must be kept in mind that these clauses must be drafted in a very specific manner to ensure that the parties are not cutting their nose to spite their face.
In the matter of Wheelwright // CP de Leeuw Johannesburg (Pty) Ltd the Labour Appeal Court (“LAC”) had to determine whether or not a full and final settlement reached at the Commission for Conciliation, Mediation and Arbitration (“CCMA”) would ultimately prevent the employer from bringing an urgent application to compel the employee to stop acting in breach of his restraint of trade.
Applicant was employed by the Respondent first on a fixed-term basis and then on a permanent basis. During both forms of employment, Applicant’s employment was subject to a restraint of trade which prevented that he, inter alia, render services to a Respondent competitor or client for a period of approximately five years after the employment relationship terminated.
During the COVID-19 pandemic, Respondent’s business took a dip and it implemented a salary reduction for staff, inclusive of Applicant. Applicant did not agree with the proposed reduction in his salary and was subsequently retrenched.
Applicant referred an unfair dismissal and severance pay dispute to the CCMA in July 2021. A settlement was reached between the parties within the CCMA in October 2021. The settlement agreement contained the following settlement clauses; namely the standard CCMA settlement clause and a special addendum marked annexure “A” which contained additional and more specific settlement provisions.
The CCMA standard settlement clause read “… This agreement is in full and final settlement of the dispute referred to the CCMA as well as in full and final settlement of all statutory payment due to the applicant as reflected in paragraph 5 of this agreement …”.
Annexure “A” read as follows “… The parties have agreed to the full and final settlement of all matters between them and wish to record the terms of the settlement of this agreement … This agreement is in full and final settlement of all and any claims that the parties may have against each other whether such claim arises from contract, delict, operation of law, equity, fairness or otherwise.”.
Towards the end of 2021, Respondent became aware that it may become a possibility that Applicant would act in contravention of his restraint of trade. During 2022 Applicant, according to Respondent, breached the terms of his restraint of trade. Respondent launched an application in the Labour Court. The essential dispute between the parties was the meaning and implication of the full and final settlement clauses contained in the signed CCMA settlement agreement, which is inclusive of annexure “A”. The LC held that the settlement agreement did not include the waiver, by the Respondent, of the Applicant’s restraint of trade.
Unhappy with this outcome, the Applicant approached the Labour Appeal Court.
Applicant submitted that the settlement agreement included a standard CCMA clause and a bespoke annexure “A” specifically drafted by the parties. The standard clause addressing the actual dispute before the CCMA and annexure A addressing an overall settlement of “… any and all claims which the parties may have against each other whether such claims arise from contract, delict, operation of law, equity, fairness or otherwise…”. Had the intention only been to settle the CCMA dispute, there would have been no need to conclude the settlement provision in Annexure “A”.
Respondent submitted that (i) the CCMA settlement clause and annexure “A” had to be read together thereby clearly providing that the full and final settlement reached was purely in relation to the disputes brought before the CCMA, namely the unfair dismissal and severance pay dispute; and (ii) Respondent had never abandoned/waived, or intended to abandon/waive, its rights in terms of the restraint of trade.
The LAC held that –
- Annexure “A” extended beyond the CCMA clause;
- The use of the language “… delict, operation of law, equity, fairness or otherwise.” was particular and at the time no cause of action in relation thereto was before the CCMA;
- At the time of concluding the settlement agreement, Respondent was aware that Applicant may have intended to breach his restraint of trade. Respondent took the time to negotiate a separate bespoke annexure “A” and should have then included its intention therein that the full and final settlement reached would not be in relation to the aspects of Applicant’s restraint of trade. Respondent should have ‘carved out an exclusion so that the restraint of trade agreement continued to be operative’;
- The absence of the aforementioned and the use of the term “… any and all claims…” are binding and therefore the settlement is inclusive of the waiver of the restraint of trade agreement; and
- The court a quo erred in finding that the settlement agreement did not include a dispute that might arise out of the restraint of trade agreement, and the LAC upheld the appeal with costs in Applicant’s favour.
A takeaway from this case is to always ensure that any settlement agreement reached is specific to existing and future disputes, especially if the intention is to retain the enforceability of some restraint of trade provisions.