Conditional employment contracts – fair or unfair?
Author: Kabelo Komana – Associate Designate *Supervised by Gugulethu Mthalane – Director
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A recent decision of the Supreme Court of Appeal (SCA) on the impact of suspensive conditions on the enforceability of a contract raises questions on the lawfulness and fairness of conditional employment agreements – a common practice in business where an employment contract can be terminated if the employee does not meet specified conditions such as producing a work permit or proof of qualifications by a set date.
Although the SCA in the matter of Municipality of Mhlontlo v TDH Tsolo Junction (1086/2019)  ZASCA (7 January 2021) pertained to a property development contract, the principle confirmed by the court is of interest in the enforcement of all contracts, including employment.
The issue that was decided by the court was whether a contract can be rendered unenforceable by the non-fulfilment of a suspensive condition contained in a letter of appointment.
A suspensive condition is a condition which suspends rights and obligations for the validity of an entire contract until a certain future event occurs. Upon the occurrence of that event, the suspended part of the contract (or the entire contract) is brought to life. If the suspensive condition is never fulfilled, the suspended rights and obligations never come into existence and it will be as if the agreement was never concluded.
The facts of the matter were that the Mhlontlo Municipality (the appellant) had invited tender proposals in July 2008 for the development of property and the respondent, TDH Tsolo Junction, a property developer, was one of the bidders. In December 2008, the municipality issued a letter of appointment to TDH Tsolo Junction, signed by the municipal manager. The letter listed a number of documents that the developer was required to supply, and stipulated that the developer would need to sign an agreement containing the “conditions of contract” for the appointment to come into effect.
The developer accepted the letter of appointment in writing and thereafter signed a supply and development agreement on 18 March 2009. On 25 February 2011, the developer issued summons against the municipality, claiming damages for breach of the agreement.
The municipality in response filed numerous special pleas, which the first court dismissed and granted it leave to appeal.
The municipality argued that the agreement was subject to a suspensive condition in that the developer had to submit the documents stipulated in the letter of appointment. The municipality contended that non-submission of the documents meant that the agreement did not come into existence and therefore, the claim for damages was not sustainable.
The undisputed evidence was that during the contract negotiations the developer had explained why the documents were not applicable to the project, and that the parties had in fact agreed to exclude the requirement for the documents from the agreement. The agreement contained no reference to the letter of appointment and, importantly, clause 15 of the agreement provided that it constituted the sole memorial of the agreement.
The SCA found that the agreement was not subject to the alleged suspensive condition of the letter of appointment as argued by the appellant, and it dismissed the appeal.
Implications for employment contracts? The relevant question here is whether suspensive conditions can be used in contracts of employment, seeing that the validity and the termination of such contracts are regulated by special legislation.
The South African constitutional principle that everyone has a right to fair labour practices is entrenched in the Labour Relations Act 66, 1995 (LRA). Suspensive conditions in employment contracts are not unlawful as long as they do not attempt to circumvent the LRA.
Of importance is to focus on whether or not suspensive conditions deny the employee a right conferred by the LRA or, put differently, whether a particular condition constitutes an intent by an employer to “contract out” of the unfair dismissal provisions of the LRA.
In the case of Kawalya-Kagwa v Development Bank of Southern Africa (2017) 38 ILJ 643 (LC) (31 October 2016) the bank employed the applicant in a senior position on a fixed-term contract, subject to the condition that he would obtain a valid work permit. When his work permit application was delayed, he suggested to the employer that he continue working without pay until he obtained his permit (i.e. a suspensive condition). The employer agreed to this arrangement and set a deadline after which the applicant’s services would be terminated. The applicant then presented a copy of his work permit to the employer. This led to his appointment being confirmed although the bank doubted the authenticity of the permit and proceeded to tell the applicant not to report for duty and stopped his salary.
The Labour Court accepted that the contract and subsequent correspondence between the parties created a suspensive condition which required the applicant to obtain a valid work permit. This condition was satisfied when the applicant presented a copy of his permit. The court accepted that the permit was valid (until proven otherwise), and that the applicant had satisfied the suspensive condition of his contract and was thus entitled to be treated as an employee of the bank. The employer’s suspicions about the validity of the document, and its investigation which was still under way at that stage, did not negate this.
Conditional employment agreements are a commercial reality and the LRA is not opposed to such contracts entered into with the clear understanding that the contract would come to an end if certain conditions are not met. This means that suspensive conditions do not deny employees their rights conferred under the LRA. Furthermore, our law makes allowance for a contract of employment coming to an end without it amounting to a dismissal or constituting an intent to “contract out of” unfair dismissal provisions.
Examples of suspensive conditions include providing proof of qualifications, a clear criminal record or meeting certain health requirements. Employers should, however, guard against using criteria that may be challenged on the basis that they are void for vagueness. Employers should also refrain from setting conditions that deny employees their rights under the LRA, that are discriminatory or irrelevant to the requirements of the job.
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