Why SME’s need contracts

Just like a person avoids drafting a will (because it’s a concession to mortality), some business owners avoid concluding contracts (with employees, suppliers, freelancers, etc.) because they think this is negative and anticipates problems.

Properly drafted contracts do not create problems — they solve them. Written agreements are essential for a good working relationships with providers, vendors, partners and clients or customers.

Why do contracts make sense?

They provide certainty.

A well-drafted contract clearly sets out each party’s expectations. It helps both parties focus on their business relationship and removes any uncertainty about their respective rights and duties.

Contracts outline obligations and remedies.

Parties need to know what their obligations to each other are and what the consequences of failing to perform (breach) may be. E.g., the contract may state that if one party sues the other and wins, the loser pays all the costs.

They provide alternative remedies.

The contract should provide for alternative dispute mechanisms, such as an obligation to first meet to attempt to resolve thorny issues, and that failing, to mediate the dispute or go to arbitration. Usually this avoids lengthy and expensive litigation and may even restore the trust relationship between the disputants.

Contracts help you end the business relationship. The contract sets out when and how either party can terminate the contract (e.g., after a material breach, a specific time period, etc). This creates certainty.

Contracts anticipate the unforeseen.

A commonly included clause in business contracts is the “force majeure” or the “act of God” provision. This clause in a contract sets out the parties’ obligations and rights in the event of an unforeseeable event, such as a pandemic, a natural disaster, or any other circumstances beyond their control that makes it unreasonably difficult to perform under the contract. 

Unenforceable Clauses in A Marriage Contract

 

A client asked if he could include a provision in his antenuptial contract that expressly excludes the right of his intended spouse to claim maintenance upon divorce.

Another client asked if the contract could contain a clause deterring the husband-to-be from being involved in an extramarital affair in the future?

Antenuptial Contracts: An Overview

An Antenuptial contract (ANC), often referred to as a prenuptial agreement or marriage contract, is a legal document that couples can enter into before getting married. An ANC is a way for couples to outline their financial arrangements, specifying how their assets and liabilities will be divided if the marriage ends in death or divorce.

Spouses are generally free to include any provision in their ANC. However, the provision may not be contra bonos mores (against the good morals of the public), against nature, reason, public policy, prohibited by any law or purports to take over the powers of the court. Clauses of this nature will be null and void. An ANC may not include clauses that are unreasonable, against public policy or unlawful:

Unreasonable clauses include ones:

 

• prohibiting a spouse from working.
• forcing a spouse to live in a particular area.
• stating that marital disputes must be referred to arbitration.
• obliging a spouse to adopt the religion of the other spouse.
• stating that the parties will not live together as man and wife after the marriage.
• stating that neither spouse shall have the right to ask for an order of forfeiture or share in the accrual of the other’s estate or claim maintenance following a divorce.

Against public policy:

• Clauses enforcing a change of religion, gender or race or prohibiting any association.
• A clause permitting the parties to commit adultery.

Unlawful

• Clauses allowing or forcing a spouse to commit a crime.

Effect of a clause discouraging infidelity

May an ANC include a clause to deter the husband from being involved in an extramarital affair in the future?

Case law suggests that one must interpret this type of clause in context. For example, the parties had been divorced before because of the husband’s involvement in extramarital affairs.

An example of such a clause:

‘Should it be proven that A be the cause of a future divorce through an extramarital relationship, he will (here reflect an obligation on the husband to give the wife a fixed property, pay her a cash amount, etc.)’

The court will enforce this clause as it seeks to preserve the marriage by discouraging another extramarital affair by the husband.

Summary:

Whether it possible to include a provision in an antenuptial contract that excludes any right or imposes an obligation after divorce, its enforceability can be a complex and contentious issue. It is crucial to seek legal counsel to ensure that your antenuptial contract is valid and complies with South African laws. Consulting an attorney experienced in family law will help you navigate this sensitive and legally intricate process to create a contract that reflects the intentions and needs of both parties while respecting the principles of fairness and justice.

 

Restraint of Trade Agreements and Business Transfers

Introduction:

In the ever-evolving legal landscape surrounding restraint of trade agreements and business transfers, two significant cases, Slo Jo Innovation (Pty) Ltd v Beedle in 2020 and Avis Southern Africa (Pty) Limited and Others v Porteous in 2023, have set the stage for critical discussions. These cases concern the transferability of restraint of trade agreements when employees change employers. While the 2020 case provided one perspective, the 2023 case introduced a different approach, prompting substantial legal debate.

Comparing the 2020 Case with the 2023 Case:

The 2020 case, Slo Jo Innovation (Pty) Ltd v Beedle, marked a turning point. It established that restraint of trade agreements included in employment contracts were transferable under the Labour Relations Act, providing legal ground for such transfers. However, in 2023, the High Court's judgment in Avis Southern Africa (Pty) Limited and Others v Porteous presented an alternative viewpoint.

Court's Findings:

In the Avis case, the first and second respondents, David and Belinda Porteous, were central figures. David had worked with Avis since 1988, and eventually, Avis became part of Barloworld South Africa (Pty) Limited. David held the position of Chief Operations Officer of Avis's car rental and leasing business when he resigned in 2023.

Belinda, on the other hand, started her employment with Zeda in 1999 and later became the Manager of International Sales for the Avis Rent-a-Car business, a role she maintained after her employment transferred to Zenith in 2021. She resigned in 2023 with plans to establish a consulting company in Mauritius, focusing on the mobility and tourism industry.

A critical issue in the Avis case revolved around the restraint of trade undertaking. Avis contended that the restraint undertakings were included in Belinda's Zeda contract and continued to apply when she was employed by Zenith in 2021. This issue raised the question of whether the benefit of the restraint of trade undertaking was indeed transferred to Zenith.

Bester AJ, presiding over the case, was tasked with determining whether the restraint of trade undertakings had effectively been transferred. The court's findings were as follows:

Bester AJ emphasized that the transfer of rights was a factual matter. To prove the transfer of restraint undertakings, the applicants had to establish that the terms of the agreement between Avis and Barloworld explicitly included these restraints. The court's decision was to be based on the parties' intentions, as evident in the wording of their agreement. In this case, the court was not persuaded that the applicants had effectively demonstrated the cession of the restraint of trade undertakings to Barloworld.

Bester AJ also distinguished the Avis case from the Beedle case, highlighting a crucial difference. In Beedle, the Labor Appeal Court had ruled based on the absence of a business transfer to a third party, which rendered the question of ceding restraint of trade undertakings from one employer to another irrelevant.

Summation: 

The Avis case holds particular importance for employers looking to enforce restraint of trade agreements, especially in cases where new employment contracts lack explicit restraint clauses. To succeed in such cases, employers must establish that both parties intended to cede restraint of trade undertakings as part of the business's goodwill. In essence, employers must provide evidence demonstrating that both parties mutually agreed to these stipulations, even if they were not explicitly articulated in the contract. 

Understanding the Shifrin Case and the "Written Variation" Rule in South African Contract Law

Introduction:

In South African law, contracts play a pivotal role in regulating agreements between parties. The Shifrin case is a significant legal decision that has had a profound influence on how contracts operate. It introduced a key rule that states when a contract is in writing and includes a provision that requires any changes to be in writing, any attempts to alter it through oral agreements are not permissible and will not be legally recognized.

Summary of the Shifrin Case and the "Written Variation" Rule:

The Shifrin case involves written contracts that incorporate a stipulation mandating written modifications. Here are the main points:

·         Written Contracts and Modifications: Many contracts include a provision requiring that any changes or revisions to the contract be documented in writing. This is done to avoid misunderstandings. 

·         The Shifrin Case: In the Shifrin case, the parties had a written contract with a provision specifying that changes must be documented in writing. Nonetheless, one party attempted to effect changes through verbal discussions. 

·         The Legal Rule: The court in the Shifrin case determined that when a contract insists on written modifications, all parties must adhere to that requirement. Therefore, any attempts to amend or annul the contract through oral discussions are ineffective and will not be legally enforced. 

·         Implications: The Shifrin rule underscores the significance of written agreements and contributes to legal certainty. It restricts the capacity to casually modify a contract through verbal discussions, particularly when the contract stipulates that changes must be documented in writing. This rule fosters clarity and stability. 

·         Exceptions: Although there can be exceptions, they typically necessitate compelling evidence to substantiate.

Conclusion:

The Shifrin case and the "Written Variation" rule have had a profound influence on how contracts are employed in South African law. They emphasize the importance of written agreements and ensure adherence to the terms specified in the contracts. This serves to avert misunderstandings and bolster the reliability of contracts. While there are limited exceptions, they demand substantial evidence for validation. In simple terms, the Shifrin case ensures that written contracts are accorded serious consideration, and any modifications should conform to the written requirement as set out in the contract.

High Court Rules Parental Leave Provisions Unconstitutional

 

Introduction

In the case of Van Wyk and Others v The Minister of Employment and Labour, the High Court has made a significant ruling regarding the constitutionality of certain provisions related to parental leave in South Africa. These provisions were outlined in the Basic Conditions of Employment Act (BCEA) and the Unemployment Insurance Act (UIF Act), affecting maternity, parental, adoption, and commissioning parental leave. The court's decision revolves around the discrimination between mothers and fathers in these provisions, which it found offensive to the principles of the Constitution.

Examination of the Facts

The applicants in this case are Werner and Ilka Van Wyk, a married couple with a child. Sonke Gender Justice, an organisation advocating for gender equality, and the Commission for Gender Equality (CGE) also participated as applicants. The respondent is the Minister of Labour, responsible for the BCEA. Mr. Van Wyk is a salaried employee, while Mrs. Van Wyk runs her own business. They faced a unique situation where Mrs. Van Wyk needed to return to her business quickly to prevent it from failing, making Mr. Van Wyk the primary caregiver for their child.

Court's Findings

The core issue before the court was the alleged unconstitutionality of sections 25, 25A, 258, and 25C in the BCEA, which address maternity and parental leave. The argument presented was that these sections are unconstitutional because they unfairly discriminate against parent-employees, violating the equality (section 9) and dignity (section 10) provisions of the South African Constitution.

The contested sections differentiate between three categories of children: those born of a mother, those born through surrogacy, and adopted children. Moreover, they differentiate between mothers and fathers, as well as between birthmothers and other parents. The logic behind these provisions assumes that one parent is a primary caregiver, and the other is ancillary, leading to a four-month maternity leave for birthmothers.

The court ruled that providing only ten days of leave to fathers implies a mindset that marginalizes the father's role in early parenting, which is offensive to the constitutional principles of dignity. The BCEA did not account for family models like the Van Wyks', which are consistent with constitutional norms. Consequently, the court declared the sections in the BCEA to violate sections 9 and 10 of the Constitution and called on Parliament to address the inequalities.

The court's immediate solution to eliminate inequality, during an interim period, is to propose that all parents, regardless of their situation, enjoy four consecutive months of parental leave, to be shared as they see fit.

The court directed parliament and the legislature to address the unconstitutional provisions of the BCEA and the UIF Act within a period of two years.

Conclusion

The Van Wyk case has declared certain provisions in the Basic Conditions of Employment Act and the Unemployment Insurance Fund Act unconstitutional. These provisions unfairly discriminated between mothers and fathers, and between different types of parents and children. The court found that the discrimination impaired the dignity of fathers and was inconsistent with the South African Constitution. To rectify this, the court proposed equalizing parental leave for all parents, allowing them to share four months of leave as they choose. This decision is a significant step toward promoting gender equality and addressing discrimination in parental leave policies in South Africa.