Council weighs settlement for 655 employees after salary freeze

Enoch Mgijima Local Municipality will on Thursday ask council to approve a settlement that will finally end a decade-old grading dispute that has left 655 employees without a salary increase since July 2023.

A report before the ordinary council meeting on 27 August 2026 recommends council approve an out-of-court settlement for Labour Court case PR 237/23 and bargaining council matters EX/HQ 072301 and EX/HQ 112401.

The dispute dates back to the 2016 amalgamation of Tsolwana, Inkwanca and Lukhanji municipalities. A recategorisation application by Lukhanji was blocked because of the merger, and employees have since been paid on incorrect scales. The issue was compounded in 2022 when the municipality was placed under national intervention in terms of Section 139(7) and council froze salary increases as part of its Financial Recovery Plan.

The municipality applied for exemption from paying the increases at the SALGBC. The application was dismissed in September 2023, and the municipality took the ruling on review to the Labour Court in Gqeberha. That case has never been heard.

In the meantime, a deep inequity has opened up.

Senior management has already been moved to Grade 5 in terms of Government Notice 6967 of December 2025, with backpay. Councillors have received increases. Newly appointed staff who were correctly placed also received corrections and backpay.

The 655 affected employees below senior management are now the only group that has received nothing for three financial years. In some cases, managers affected by the freeze now earn less than their subordinates.

On 8 May 2026, the Local Labour Forum reached an agreement in principle to settle.

What the settlement will cost

According to the CFO’s costing:

– *Current frozen payroll* for the 655 employees: R172.6 million per year
– *Cost of correction:* Placement on Grade 4: R11.3m, plus 2025/26 increase of 5.01%: R9.2m, plus notch increment: R7.9m
– *Total additional annual cost:* R28.4 million – raising the cohort cost to R201.1 million from 1 July 2026

– *Retrospective portion:* R14.2 million for six months to 30 June 2026 – or R11.8 million if council opts for five months. This is in full and final settlement of all claims from 1 July 2023 to 30 June 2026.

– *Savings from the freeze:* The municipality saved R30.6 million by withholding increases over three years. After deducting R19.7 million in quantified historical employee indebtedness from legacy overpayments, the net saving retained is R10.9 million.

The report warns that continuing with litigation is riskier.

Legal costs alone are estimated at R1.35m to R3.7m. If the municipality loses the review, it would have to pay the full R30.6m backdated to July 2023, plus 15-30% for pension and medical aid contributions, pushing the exposure to between R35.2m and R39.8m, plus interest at 10.25% to 10.50% per annum.

“Success in the review would therefore return the parties to the Bargaining Council on the same facts, several years further on, with the underlying grading question still unresolved,” the report states.

Conditions for payment

The report stresses the settlement is not an unconditional backpay.

No payment may be made until:

– The CFO quantifies all employer contributions
– The amount is accommodated in the revised FRP and adjustment budget
– Corporate Services and the CFO verify the task grade, notch, period of service and payroll record of each of the 655 employees
– Employees who left or acted in senior positions are audited to ensure no double payment

Council has already authorised the Acting Municipal Manager in April to withdraw legal proceedings, subject to a legal opinion and this further report. This report is that further report.

If approved, the settlement will be made an order of the Labour Court in terms of Section 158(1)(c) of the Labour Relations Act, and the three cases will be withdrawn only after lawyers confirm finality.

“The settlement should be treated as a measure of risk management, labour stability and institutional correction, rather than as an additional item of salary expenditure,” the report concludes.