The importance of the employment contract

The contract of employment is a vital document as it regulates the terms and conditions of employment between the employer and the employee. However, it is always quite surprising how few employers have entered into written contracts of employment with their employees and if they have, more often than not, these contracts of employment are poorly drafted and inadequate. The failure to make use of written contracts of employment is particularly prevalent in many small businesses where there is a relaxed atmosphere where entrepreneurs assume that their dealings with employees can be handled verbally.

The Contract of Employment in South African Law

In South African Law, the contract of employment commences when the parties have agreed to the essential terms of the contract. Broadly speaking a contract of employment is:

1. A voluntary agreement;

2. Between two parties (employer and employee), according to which –

2.1. the employee undertakes to perform certain specified and/or implied duties for the other party, the employer;

2.2. the employer gains a (qualified) right to command the employee as to the manner in which he or she carries out his or her duties;

3. The contract endures for an indefinite period unless otherwise specified.

4. In return for determinable remuneration in money or in value.

In terms of our common law, parties are not required to observe any formalities when concluding a contract of employment. Whilst the common law does not require contracts of employment to be reduced to writing, the Basic Conditions of Employment Act, Act 75 of 1997 (“the BCEA”) requires all employers who employ more than five employees to conclude contracts of employment which must contain certain particulars. Failure to comply with the provisions of the BCEA in this regard may result in the imposition of a fine. However, the failure to reduce the contract of employment to writing does not render it void.

The parties to a contract of employment are free to regulate their respective rights and obligations in the contract in any manner they deem fit, subject to the requirements of law and good morals. Section 29 of the BCEA requires employers to supply their employees at commencement of employment with the following particulars:

The full name and address of the employer;
The name and occupation of the employee, or a brief description of the work for which the employee is employed;
The place of work, and, where the employee is required or permitted to work at various places, an indication of this;
The date on which the employment began;
The employee’s ordinary hours of work and days of work;
The employee’s wage or the rate and method of calculating wages;
The rate of pay for overtime work;
Any other cash payments that the employee is entitled to;
Any payment in kind that the employee is entitled to and the value of the payment in kind;
How frequently remuneration will be paid;
Any deductions to be made from the employee’s remuneration;
The period of notice required to terminate the employment, or if employment is for a specified period, the date when the employment is to terminate;
A description of any council or sectoral determination which covers the employer’s business;
Any period of employment with a previous employer that counts towards the employee’s period of employment;
A list of any other documents that form part of the contract of employment, indicating a place that is reasonably accessible to the employee where a copy of each may be obtained.

These above particulars will form the bare essentials of the contract of employment. However, as the contract of employment forms the foundation of the relationship between the employer and the employee, it is particularly advisable that the employer ensures that the contract of employment is properly fleshed out so as to regulate the scope of the employee’s services and appropriately deal with issues such as, amongst other things, probationary periods, the protection of the employer’s confidential and/or proprietary information and whether the employee will be subject to a restraint of trade.

Written contracts of employment

As stated above, although a written contract of employment is not a prerequisite for a valid employment contract, it is undeniably advisable to record the contract of employment in writing for the sake of clarity as well as to avoid any disputes, or make it easier to settle such disputes.

In the absence of a written contract of employment, there is often ambiguity in relation to a number of important terms and conditions that attach to the employee’s employment. This ambiguity may lead to conflict and tension between the employee and the employer which may in turn lead to an irretrievable breakdown of the employment relationship.

Further, a written contract of employment regulates the scope of the employee’s services and accordingly provides a degree of certainty regarding the rights and duties of the employee and, in essence, details what is expected of the employee.

Clear and precise written contracts of employment are particularly important in cases involving the hiring of senior employees to oversee a particular function or to oversee a project successfully, as the contract of employment should clearly and precisely record the performance expectations of the employer. Such a contract should also record whether there is a share option, commission, bonus or other compensation aspect payable to the employee.

A contract of employment also protects the employer as it regulates the behaviour of the employee in the workplace. This is vitally important because all company policies, as well as an employer’s disciplinary code, should form part of the contract of employment. If there is no contract regulating these matters, it is extremely difficult to take disciplinary action against a recalcitrant employee.

Accordingly, it goes without saying that a good, clearly written contract of employment can prevent lengthy disputes or even litigation. A rule of thumb that all employers should utilise is that an employer should always enter into a well drafted written contract of employment from the date that the employee commences employment.

Marc Humphries

Legal Advisor, Johannesburg