CHAPTER 3

The contract of employment

INTRODUCTION

• The employment relationship is regulated by three main sources of law:

1. The Constitution;
2. Labour legislation; and
3. The law of contract.

• Initially, only the common law of contract governed the employment relationship.
• Although the employment relationship is now largely regulated by labour
legislation, the common law of contract still applies to the extent that legislation
does not.
• This means that if legislation does not provide an answer to a legal problem arising
out of employment law, then the details of the of agreement between the parties,
as well as the common law, should be consulted.
• The Constitution overarches all of these and must be used to interpret all legal
sources.
THE PARTIES TO THE EMPLOYMENT RELATIONSHIP

• The employment relationship imposes extensive rights and obligations on the

employer, e.g. the right to commence and terminate the employment relationship.

• The rights and interests of employees are protected by Constitution and labour
legislation.

• This is to guarantee fair labour practices, protection against unfair dismissals and to
provide employees with collective bargaining rights.

• However, only employees fall within the scope of the LRA.

Definition of employee

• It is necessary to first establish the existence of an employment relationship before

employment legislation will apply to a relationship – NB.

• Therefore, it is important to establish who is an employee and who is an employer.

s 213 of the LRA -

definition of
“employee”

(a) any person, excluding an independent contractor, who works for another
person or for the State, and who receives, or is entitled to receive, any remuneration;
and
(b) any other person who, in any manner, assists in carrying on or conducting the
business of an employer and ‘employed’ and ‘employment’.
TESTS TO ESTABLISH WHETHER A PERSON IS AN EMPLOYEE OR
INDEPENDENT CONTRACTOR

• Various tests have been relied upon in order to establish whether a person is an
employee or independent contractor.

• This is relevant because independent contractors are not protected by the LRA. The
tests include the following:

 The control test recognises that an employment relationship is characterised by an element

of control by the employer over the employee.

 The organisation test examines whether a person forms part of an employer’s organisation,
e.g. must abide by dress code, belongs to pension/medical aid scheme.

 The dominant impression test looks at the main or dominant impression left by the contract
and working relationship, e.g. factors include the employer’s right to select who will do the
work, the employer’s power to dismiss, the employee’s obligation to work for a given time
and for specified hours, etc.
 Section 200A of the LRA – rebuttable presumption

• Section 200A of the LRA creates a rebuttable presumption that a person who
renders services to any other person is presumed, regardless of the form of
contract, to be an employee if any one or more of a list of seven factors are present.

• Even if the contract of work purports to be that of an independent contractor, if any

one of the listed factors is present, the person is presumed to be an employee and
the onus is on the employer to prove otherwise.
Seven factors in 200A of the LRA – rebuttable presumption

a) the manner in which the persons work is subject to the control and direction of
another person;
b) the person’s hours of work are subject to the control or direction of another
person;
c) in the case of a person who works for an organisation, that person forms part of
that organisation;
d) the person has worked for that other person for an average of at least 40 hours
per month over the last three months;
e) the person is economically dependent on the other person for whom he or she
works for or render services;
f) the person is provided with tools of the trade or work equipment by that other
person; or
g) the person only works or renders services to that other person.

• NB – presumption that a person is an ‘employee’ in s200A of the LRA is not

applicable to persons who earn in excess of the threshold amount (R205 433.30).
The meaning of presumption?
The meaning of “presumption”

• A presumption is the acceptance of a fact or a state of affairs as being true and

correct.

• A rebuttable presumption is a fact or state of affairs which is presumed to be true

and correct until the contrary is proved.

• An irrebuttable presumption is a fact may not or cannot be disproved.

NOTE: Section 200A shifts the burden of proof so that the person who alleges to be
an employee does not have to prove the allegation, but the person who is alleged to
be employer has to prove that the person is not an employee when any one of those
seven factors is present.
Recent court decisions – reality test

• Recent court decisions have stated that the true test to determine the nature of
the relationship between parties is the reality test.

• In this regard, the court have established three primary criteria in establishing the
true nature of the relationship, with any of the following factors being regarded as
sufficient to indicate an employment relationship.

• The criteria are whether:

• The employer has a right to supervise and control the employee;

• The employee forms an integral part of the organisation of the employer; and
• The employer is economically dependant on the employer.
 Employee Independent contractor

• Always at employer’s disposal • Uses own discretion and free to work

when he/she wants to
• Employee must perform services • Independent contractor may usually
personally perform through others

• Contract terminates on death of • Contract does not necessarily

employee terminate on death of independent
contractor
• Contract terminates on expiry of • Contract terminates on completion of
period of service in contract work or production of specified results

• Employee obliged to perform lawful • Not under supervision or control of

commands & instructions of employer employer
• Object of contract = render service • Object of contract = perform specified
work or produce specified result
Written contract of employment

• The existence of an employment relationship is not determined by the conclusion

of a written contract of employment, despite a provision in the BCEA requiring the
employer to provide the employee with “written particulars of employment”.

• While a written contract concluded between the parties can be instructive or reveal
a lot about the nature of the relationship, it is not conclusive.
Atypical employees

• Establishing whether a person is an employee is more complicated in the case of

atypical employees.

• An atypical employee is one who is not engaged in a permanent employment

relationship – examples are part-time workers, temporary employees, fixed-term
employees, homeworkers and workers employed by labour brokers.

• The courts have usually held that these workers nevertheless remain employees
and are protected by labour legislation, regardless of whether they have formal
contracts of employment or not.
Definition of employer

• An employer is any person that employs or provides work to an employee and that
remunerates the employee for such services, or permits such an employee to assist
it in carrying on or conducting of its business.

• An employer can take many forms, which includes natural and juristic persons.

• For example, a person, a partnership, a company, close corporation or a trust.

Duties of employees

The common-law contract of employment gives a number of duties to employees:

• The duty to enter and remain in service – an employee who does not enter or
remain in service is not entitled to remuneration.

• The duty to maintain reasonable competence – employee must be reasonably

competent, e.g. cannot misrepresent qualifications on CV.

• The duty to further the employer’s business interests – an employee is required to

use his/her ordinary working hours to further employer’s interests, e.g. cannot
work for a competitor.

• The duty to be respectful and obedient – disrespect and disobedience may render
employment relationship intolerable, leading to a dismissal.

• The duty to behave properly – employees must conduct themselves appropriately.

Duties of employers

The common-law contract of employment gives a number of duties to employers:

• The duty to receive the employee into service – there is generally no duty on the
employer to provide work unless failure to provide work has negative impact on
employee’s income or status.

• The duty to pay the agreed remuneration – this is the most important duty owed
to employee and breach of this duty = breach of contract.

• The duty to provide safe working conditions – regulated by common law and
OHSA e.g. providing employee with safe machinery, safety equipment, etc.

• The duty to be vicariously liable to third parties for acts of employees – an

employer is vicariously liable for a wrongful act, committed by it’s employees in the
course of employment against a third party.
THE CONTRACT OF EMPLOYMENT

• Employment contract = agreement between two parties in terms of which the

employee undertakes to make his/her services available to the other party for an
indefinite or agreed period of time in exchange for remuneration.

• There must be an agreement between the contracting parties.

• Parties must have the capacity to enter into a contract – age and mental capacity.
• Parties must have the intention to be bound by the contract.

• The contract between the parties must be freely and voluntarily entered into.

• The parties can agree to include any terms into the contract provided that they do
not conflict with legislation and are not contrary to public policy.
Express terms of the contract

• The BCEA provides that the employer must provide the employee with written
details or particulars of employment, generally taking the form of a contract of
employment.

• For example: The name and address of the employer, place of work, ordinary hours
of work, remuneration, leave that the employee may take, commencement of work.

• The employer must ensure that the employee is able to understand the written
particulars and must ensure that they are explained in a language that the
employee understands.

• Any changes to the details of the contract of employment must be recorded in

writing.

• However, a failure to record the contract in writing does not make it void.
Disciplinary rules and procedures

• Employment contract may include employer’s disciplinary rules and procedures.

• If the rules are included in the contract – employee presumed to be aware of rules.

• If rules are breached – could lead to dismissal of employee.

• An employer may set any rule and sanction for breaking the rule provided that it is
reasonable and not contrary to public policy.
Restraint of trade clauses

• A restraint of trade clause may be included in an employment contract.

• This clause prevents employees from competing with an employer’s business
interests after their employment ends.
• A restraint provision applies regardless of whether employee is dismissed/resigns.
• Such clauses are generally lawful, provided that they are reasonable.
• Employees may not unlawfully use trade secrets or knowledge gained during
employment with the employer to further their own or another employer’s
interests.
• However, the employee is entitled to use general skills and knowledge gained
during employment.
• A contractual clause that prevents a former employee from earning a livelihood
would be contrary to public policy and unenforceable.
• In deciding whether a restraint of trade clause is lawful and reasonable, a court will
consider whether the employer has a legitimate interest that ought to be protected
and whether the interest is being negatively affected or prejudiced.
• NB! Read the two cases on page 35 of the textbook.
Unlawful terms

• The employment contract may not contain a provision which is unlawful or

contrary to public policy – invalid and unenforceable.
• Therefore, the employment contract cannot contain a provision which requires the
employee to agree to waive or give up the right to statutory protection, nor may it
contain a provision that entitled the employer to contract out of legislative
protections.
• Accordingly an employer cannot set working hours in excess of the maximum
working hours prescribed by the BCEA – However, contract may provide for more
favourable conditions.

Unfair terms
• Employment contracts may contain terms which assign decision-making to the
discretion of the employer.
• For example, the awarding of performance-related bonuses.
• Despite the inclusion of such a provision in the contract, the common law requires
such discretion to be exercised fairly and in accordance with public policy.
Implied terms

• Not all terms of a contract of employment are expressly included in the written (or
oral) agreement between the parties.
• Some terms may need to be implied into the contract from the facts or by
operation of law in order to fill the gaps left by express terms.
• Terms can be implied into an employment contract from the facts (called tacit
terms) in order to reflect the unexpressed intention of the contracting parties or to
make business sense of the contract.
• A terms implied by law, on the other hand, is an unexpressed provision that the law
imports into the contract irrespective of the intention or knowledge of the
contracting parties.
• These terms arise automatically from the nature of the contract, unless specifically
excluded by the parties.
• For example, if the contract does not specify the annual leave period that an
employee is entitled to, the provisions regulating leave in the BCEA will be implied
into the contract from the law as if the parties had agreed to them.
Varying the terms of the contract

• Employer cannot unilaterally - without agreement - change the terms of the

contract, unless this is provided for by the contract.
• Any changes to the contract will have to be negotiated with the employee.

• Employees faced with a unilateral variation of the terms and conditions of the
contract by their employers have a choice of remedies.
• In terms of the common law, the employee may interdict the employer from
implementing the variation or wait until variation is introduced and refuse to work
on the basis of the contractual breach (breach of contract).
• In such circumstances, they may be awarded contractual damages.
Varying the terms of the contract

• A change by the employer to workplace practice does not comprise or constitute a

variation on the terms of the contract. For example, an employer may move an
employee from one branch of a workplace to another or require an employee to
operate two machines instead of one.
• In such circumstances, the employee cannot claim that the terms of the contract
have been unilaterally varied.
• It is the employer’s prerogative to change workplace practices where necessary,
provided the nature of the employee’s job is not fundamentally changed.

• The terms of the contract can also be varied by collective agreement.

• Such agreements regulate the terms and conditions of employment and are
binding on all parties.
• The conclusion of a collective agreement between an employer and a trade union
automatically varies the terms of contracts of all employees falling under the
collective agreement.
FORMS OF CONTRACT
• Employment contracts may be either fixed-term or permanent in length in
duration.
Fixed-term contracts

• Fixed-term contracts end at the expiry of a stipulated period of time or upon the
completion of a stipulated event or job.
• The advantage of fixed-term contracts is that the contract terminates automatically
upon its completion and the employer is not required to dismiss the employee in
order to terminate the contract.
• The termination of the fixed-term contract during the period of the contract is a
breach of contract – unless both parties agree to early termination.
• The contract is breached, even if there are fair reasons for the dismissal of the
employee – e.g. if the employer experiences financial problems and needs to
retrench the employee.
Fixed-term contracts

• Fixed-terms contracts may also contain escape clauses that allow either party to
terminate the contract upon the giving of one month’s notice.

• These contracts are referred to as “maximum duration contracts” as the parties are
not necessarily bound to the full duration of the contract.

• The inclusion of these contractual provisions protects employers when there is an

unforeseen need to terminate the contract prematurely.

• However, the court have not always been prepared to enforce these provisions.
Indefinite-term contracts

• Unless specified otherwise, employment contracts are indefinite-term contracts.

• The dismissal of an employee is regulated by the LRA and must be for a fair reason
and in accordance with a fair procedure.

• This applies even if employment contracts expressly specify that such contract may
be terminated by the giving of notice.

• Indefinite-term contracts may contain a clause providing for compulsory retirement

age of the employee – upon the employee reaching such an age – contract
terminates automatically, irrespective of the competency of the employee – does
not constitute a dismissal.
TERMINATION OF THE CONTRACT OF EMPLOYMENT

An employment contract may terminate in a number ways:

• The dismissal of the employee – Dismissal is regulated by the LRA and is required
to be for a fair reason and in accordance with a fair procedure.

• The giving of notice – An employment contract generally specifies a period of

notice that must be given by the employee to terminate the employment contract.

• Expiry of a fixed-term contract – When the period of time specified in a fixed-term

contract expires, the contract automatically terminates.

• Retirement of an employee – The contract of employment terminates

automatically when the employee reaches the agreed or normal retirement age for
an employee in that occupation.
TERMINATION OF THE CONTRACT OF EMPLOYMENT
An employment contract may terminate in a number ways:

• Death of an employee or winding-up of an employer – The employment contract

terminates automatically upon the death of the employee or the death or winding-
up of the employer.
• Resignation of the employee – The employment contract will terminate if the
employee resigns. Once an employee resigns and the resignation is accepted by the
employer, neither party can change their mind and revoke such an agreement.
• Automatic termination of the employment contract – Public servants may have
their employment contracts automatically terminated when they absent
themselves from work without permission for a stipulated number of days (one
month for public servants generally and 14 days for teachers). In such
circumstances their employment contracts terminate automatically; they are not
dismissed and they have no remedy in terms of the LRA.
• Impossibility of performance – If either the employee or the employer becomes
permanently incapable of performing their obligations due to no fault of either
party, the contract will terminate.
JURISDICTION
• When there are disputes over a contract of employment – question arises as to
which court or body has the right to decide the matter and what kinds of remedies
are available to parties.

• The BCEA provides that the LC has concurrent jurisdiction with civil courts to hear
and determine any matter concerning a contract of employment, e.g. award
damages or compensation for breach of employment contract.

• The LC is empowered to award damages or compensation for a breach of an

employment contract.

• LRA regulates the awarding of compensation to an employee who has been unfairly
dismissed and empowers the CCMA to make awards of compensation.

• If an employee incurs contractual damages – LRA provides that the LC may make an
order for the payment of contract damages, over and above any compensation
awarded.
JURISDICTION

• Despite the clear intention of the drafters of the labour legislation that labour
disputes are to be resolved by the Labour Court and the CCMA, there have been a
number of decisions in which the civil courts have been prepared to assume
jurisdiction over disputes arising out of the termination of a contract of
employment.

• The High Court has also awarded damages for breach of contract where a
disciplinary procedure, incorporated into or included in an employment contract,
was breached.
REMEDIES
• The breach of a contractual provision is unlawful and can give rise to a claim for
either specific performance or damages for breach of contract.

• In the case of a premature termination of a fixed-term contract, the employee

would be entitled to claim remuneration that would have been earned for the
remainder of the contract of employment, less any amount that could reasonably
have been earned or that was earned during that period.

• The employee would have to prove that the damages were caused by the breach
and were not too remote in the circumstances.

• It is more difficult to calculate the damages an employee would be entitled to claim

for the unlawful termination of an indefinite-term contract.

• The generally accepted view held by the courts is that contract damages should be
limited to the notice period that the employer is required to provide the employee
in order to lawfully terminate the employment contract.