Why Your Business Needs Employment Contracts

Why Your Business Needs Employment Contracts


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.

Related: Contracts of Employment

What the law says

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.

Put it down on paper

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.

Dispense with ambiguity:

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.

Firm up duties and rights:

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

Related: Understanding Your Responsibility as an Employer

Pen performance expectations:

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.

Protect your business:

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.