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Copyright LabourNet Group 2017

Suspensive and Resolutive Conditions In Employment Contracts

February 6, 2018

 

Resolutive and suspensive conditions are widely used in the drafting of contracts, but it is an especially well-known phenomenon in contracts of sale. Employment contracts, however, also often contain such conditions. This article will briefly examine the aforesaid two conditions, and its effects on the rights and obligations of the parties to an employment contract. In its most basic form a condition in a contract makes certain rights and obligations, and often also the existence of the entire contract, dependent on the occurrence of a specified future event.

 

What is a Suspensive condition?

 

A suspensive condition is a condition which suspends rights and obligations (or the validity of the entire contract) until a certain future event occurs. Upon the occurrence of the event, the suspended part of the contract (or indeed 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.

 

For example: Company X makes an offer of employment to Mr Y, on the 01st of December, on condition that Mr Y furnishes the company with proof of his qualifications by the 31st of December. If Mr Y fails to submit proof of his qualification by the 31st of December, the employment offer (and any acceptance thereof) will be null and void as if such offer was never made (and/or accepted).

 

What is a Resolutive condition?

 

Whereas the fulfillment of a suspensive condition breathes life into otherwise inoperative rights and obligations, the fulfillment of a resolutive condition ends the existence of rights and obligations (or the entire contract). In the case of a resolutive condition, there is no suspension or postponement of terms in a contract or the validity of the contract/offer itself. Rights and obligations come into existence immediately upon agreement between the parties. If a resolutive condition is fulfilled, the operation of the rights and obligations cease.

 

For example: On the 01st of December Company X and Mr Y enter into a valid employment contract. The contract determines that if the employee commits a crime, the employment contract will immediately become null and void. Even though there was a valid employment contract in place, Mr Y can be asked to leave the company as soon as he commits a crime on the basis that the contract became void and unenforceable as soon as he committed the crime.

 

The validity of resolutive and suspensive conditions in employment contracts

 

As a general rule of contract law, suspensive and resolutive conditions are valid and enforceable. The relevant question is whether we can use these conditions in contracts of employment, seeing that the validity and the termination of such contracts are regulated by special legislation.  

 

I believe that the focus should not be whether or not all suspensive and resolutive conditions in employment contracts are valid, but whether a particular condition denies the employee a right conferred by labour legislation, or, differently put, whether a particular condition constitutes an intent by employers to “contract out” of the below mentioned unfair dismissal provisions of the LRA.

 

Everyone has a right to fair labour practices. This principle is enshrined in section 23 of the Constitution of the Republic of South Africa, 1996 and entrenched in the Labour Relations Act, 1995 (hereinafter referred to as “the Act”).

 

Section 185 of the Act provides that every employee has the right not to be unfairly dismissed and section 188(1) provides that a dismissal that is not automatically unfair, is unfair if the employer fails to prove –

 

(a) that the reason for dismissal is a fair reason –

(i) related to the employee’s conduct or capacity; or

(ii) based on the employer’s operational requirements; and

(b) that the dismissal was effected in accordance with a fair procedure.”

 

The employer consequently carries the onus to prove that a dismissal is fair from a substantive as well as procedural point of view.

 

Section 188(2) provides that “any person considering whether or not the reason for dismissal is a fair reason or whether or not the dismissal was effected in accordance with a fair procedure must take into account any relevant code of good practice issued in terms of this Act.” This is also stated in section 138(6) of the Act.

 

Section 192 of the Act requires the employee to prove the existence of a dismissal and echoes the fact that the employer carries the onus to prove that it has been fair. The Code of Good Practice: Dismissal (hereinafter referred to as “the Code”) is contained in Schedule 8 of the Act.

 

Item 4 of the Code reads as follows:

 

(1) Normally, the employer should conduct an investigation to determine whether there are grounds for dismissal. This does not need to be a formal inquiry. The employer should notify the employee of the allegations using a form and language that the employee can reasonably understand. The employee should be allowed the opportunity to state a case in response to the allegations. The employee should be entitled to a reasonable time to prepare the response and to the assistance of a trade union representative or fellow employee. After the inquiry, the employer should communicate the decision taken, and preferably furnish the employee with written notification of that decision.

 

(2) Discipline against a trade union representative or an employee who is an office-bearer or official of a trade union should not be instituted without first informing and consulting the trade union.

 

(3) If the employee is dismissed, the employee should be given the reason for dismissal and reminded of any rights to refer the matter to a council with jurisdiction or to the Commission or to any dispute resolution procedures established in terms of a collective agreement.

 

(4) In exceptional circumstances, if the employer cannot reasonably be expected to comply with these guidelines, the employer may dispense with pre-dismissal procedures.

 

Case law about suspensive conditions in employment contracts

 

In the recent case of Kawalya-Kagwa v Development Bank of Southern Africa [2017] the respondent 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 the applicant’s application for a work permit stalled, he suggested that he continue working for the respondent without pay until he obtained his permit (i.e. a suspensive condition). The respondent agreed to this proposal, but set a deadline, after which the applicant’s services would be terminated “with immediate effect”. When the applicant ultimately presented a copy of his work permit to the respondent, his appointment was confirmed. However, the respondent subsequently formed doubts about the authenticity of the permit and told the applicant that he need not report for duty. His salary was stopped.

 

The applicant then launched an urgent application for an interim order directing the respondent to pay him the salary of which he had been deprived from the date on which he presented his permit, pending the outcome of an unfair labour practice dispute on the grounds of unfair suspension. The respondent claimed that the applicant had failed to fulfill the suspensive condition of his employment contract by not obtaining a valid work permit.

 

The Court accepted that the contract and subsequent correspondence between the parties created a suspensive condition, which required him to obtain a valid work permit. This condition was, however, satisfied when the applicant presented a copy of his permit, as the respondent had at that stage accepted the copy of the permit. For purposes of the application, the Court therefore had to accept that the permit was valid, and that the applicant had satisfied the suspensive condition of his contract. The application was however denied on the grounds that the applicant’s application did not meet the requirements for interim relief.

 

We will have to wait and see what the outcome of the unfair labour practice dispute at the CCMA will be, but I believe that the CCMA will find that the applicant was dismissed and that the respondent should have held a proper disciplinary hearing for dishonesty prior to the dismissal. In my view, the respondent should rather have created a suspensive condition for the production of the original permit, as the respondent may then have found out about the dishonesty before any employment contract came into existence (in which case no disciplinary hearing or dismissal would have been required). The respondent should furthermore rather not have allowed the applicant to start working prior to the fulfillment of the suspensive condition.   

 

Case law about resolutive conditions in employment contracts

 

In the case SA Post Office Ltd v Mampeule [2010] the respondent’s employment was terminated by the appellant’s reliance on certain automatic termination provisions in his contract of employment. In terms thereof, if an executive director ceases to be a director of the company for any reason whatsoever his contract of employment would terminate automatically. The fairness of those provisions was the focus of the inquiry in this case.

 

The Court held that the "automatic termination" clause was in conflict with the statutory right not to be unfairly dismissed. The onus rested on the appellant to establish that the "automatic termination" clause prevailed over the relevant provisions in the Labour Relations Act. The court pointed out that parties to an employment contract cannot contract out of the protection against unfair dismissal afforded to an employee whether through the device of "automatic termination" provisions or otherwise.

 

This court was in agreement with the court a quo that "dismissal" means any act by an employer which results, directly or indirectly in the termination of an employment contract. The removal of Mampeule as director was premised on the exercise of shareholder rights contained in section 220 of the Companies Act 61 of 1973 ("Companies Act").  

 

The Post Office therefore had to attend to two processes, one in terms of the Companies Act to remove Mampeule as Director and the other in terms of the Labour Relations Act to remove him as an employee.

 

Conclusion

 

In conclusion suspensive and resolutive conditions are not unlawful, as long as they do not attempt to circumvent the Labour Relations Act. In my view resolutive conditions have a bigger potential of circumventing the Labour Relations Act than suspensive conditions. The safest option is to use neither of the aforesaid conditions, and to rather attend to due diligence before finalising an employment contract. Should you however require the use of a suspensive condition (or even a resolutive condition), then rather draft such a condition with the assistance of a labour law expert in order to avoid the situation experienced in the Kawalya-Kagwa case dealt with above.

For more information on the above topic, please contact the LabourNet Helpdesk at 

 

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