Small businesses are mostly started by someone who has a great idea or a vision to fill a need or to supply a service. Initially, there is a lot of enthusiasm for what they will do and how they will conquer the market. Their expertise, however, tends to be limited to their product or service. To be successful as a small businessperson, you have to be a jack of all trades; you are the financier, the human resource department, the production manager, the marketing manager, the accountant and much more.
When most startups begin their journey, they tend to draw their employees from family and friends; the last thing on their minds is the need to issue employment contracts and why they would when their employees are family and friends. This fact should not detract from the need for an employment contract.
Employment contracts are an essential aspect of any employment relationship. They establish the terms and conditions of the employment agreement and provide clarity for both the employer and the employee.
In South Africa, employment contracts are governed by a range of laws and regulations, including the Labour Relations Act (LRA), the Basic Conditions of Employment Act (BCEA), and the Employment Equity Act (EEA). This comprehensive guide aims to provide an overview of employment contracts in South Africa and highlight their importance in protecting the rights of both parties.
What is an employment contract?

An employment contract is a legally binding agreement between an employer and an employee. It sets out the terms and conditions of employment, including the employee’s duties and responsibilities, working hours, remuneration, leave entitlements, and any other benefits. The contract may be in writing or verbal, but it is always best to have a written agreement to avoid any misunderstandings or disputes.
Why Employment Contracts are Necessary
Employment contracts serve several purposes, both for the employer and the employee. Here are some of the main reasons why employment contracts are necessary:
Clarifies the Terms and Conditions of Employment
An Employment Contract not only sets the terms and conditions as per law in terms of employment, but it also sets the Employee-Employer Relationship, which is based on trust, condoned behaviour and mutual respect. Not having any employment contract puts everything in the air and can lead to employee dissatisfaction and resentment, which could ultimately affect their performance and, in turn, the company’s performance. This clarity helps avoid any misunderstandings between the employer and employee.
Protects the Rights of the Employer and Employee
The employment contract acknowledges the working relationship between the employer and the employee and avoids misunderstandings between the parties.
The law provides rights and obligations to both the employee and employer regarding the employee relationship. An example of this is that an Employer has the right to take remedial actions against an employee and demand a level of performance. An employee has rights such as not being unfairly treated and being fairly and equally remunerated.
What should be included in a contract?
- Job title and description: The job title and description should clearly define the employee’s duties and responsibilities.
- Terms that define the duties and responsibilities of the employee.
- Performance requirements.
- The code of conduct: The contract should include a code of conduct that outlines the standards of behaviour expected of the employee.
- Working hours: The contract should state the employee’s working hours, including any overtime or weekend work. It should also specify the employee’s lunch and tea breaks.
- Remuneration: the employer should state the employee’s salary, as well as any additional benefits such as medical aid, pension, or bonuses, in the contract. The contract should also specify how and when the employer will pay the employee.
- Leave entitlements: The contract should state the employee’s entitlement to annual leave, sick leave, and any other forms of leave, such as maternity leave or family responsibility leave.
- Any other benefits agreed upon.
- Notice period requirements: The contract should specify the amount of notice required by the employer and the employee to terminate the contract.
- Termination clause: The employer should outline the circumstances under which the employment relationship may be terminated, including notice periods and any other requirements, in the termination clause
- Confidentiality clause: This should outline any requirements for protecting the employer’s confidential information.
- POPIA Act: PDPA applies to employment contracts, and employers must obtain employee consent before collecting, processing, or disclosing their personal data. Employers must also take reasonable steps to ensure the accuracy and security of employees’ personal data.
Improves Communication and Trust
Employment contracts improve communication and trust. A written agreement makes both parties clear about what is expected of them. This helps establish a positive working relationship based on mutual respect and trust.
Furthermore, the contract can include a dispute resolution clause outlining the process for resolving any disagreements between the employer and employee. This can help ensure disputes are resolved quickly and fairly, further improving the working relationship.
Types of employment contracts

In South Africa, there are three main types of employment contracts: permanent, fixed-term, and project-based. These are the different types of employment contracts that Verbeek Consulting works with.
Permanent
The employer uses an open-ended contract form that specifies a starting date but no ending date, hiring the employee indefinitely and allowing termination only through the appropriate disciplinary procedures.
Fixed-term or Temporary
As the term indicates, a limited contract specifies a start and end date, after which the employer terminates the employee’s services. However, employers should exercise caution when using this type of contract because, under certain circumstances, employees could be deemed permanent, especially if the employer continually renews the contracts. Seek legal advice before using this type of contract. If you would like help with this, please feel free to contact us, and one of our legal practitioners will be happy to assist you.
Project-based contract
This form of contract is linked not by time but is linked by a need, in this case, a particular project. The contract will have a start date but no end date. However, it would state that employment will end when the project ends.
Legal requirements

In South Africa, employment contracts are subject to various legal requirements. The BCEA and LRA provide the minimum standards for employment contracts, which means that employment contracts cannot include less favourable provisions than what is required by law. These requirements are in place to protect both the employer and the employee and ensure the contract is fair and legally binding. Some of the key legal requirements include the following:
- Basic conditions of employment. The BCEA sets out minimum standards for employment contracts, including minimum wage, working hours, and leave entitlements.
- Protection against unfair dismissal. The LRA protects against unfair dismissal, which means that an employer must have a valid reason for dismissing an employee and follow a fair process.
- Non-discrimination. The EEA prohibits discrimination based on race, gender, disability, and other grounds. Employment contracts must not include any discriminatory provisions.
- Collective bargaining. The LRA allows for collective bargaining between employers and employees, and employment contracts must not undermine the rights of employees to engage in collective bargaining.
When drafting an employment contract, you should ensure that you meet all of the above legal requirements. Failure to comply with these requirements can result in legal disputes, fines, and reputational damage for the employer.
Drafting employee contracts
In addition to the above legal requirements, there are also certain best practices that employers should follow when drafting an employment contract:
- Keep the language simple and clear. The parties should write employment contracts in simple, clear language that is easy for both parties to understand. Avoid using legal jargon and technical terms that may confuse the employee.
- Ensure that the employee understands the contract. The employer should take the time to explain the terms and conditions of the contract to the employee and ensure that they understand what they agree to.
- Be transparent about remuneration. The employer should clearly state the employee’s remuneration in the contract. This includes any bonuses, incentives, or benefits that are offered, and should also outline how and when the employee will be paid.
- Include a termination clause. The contract should include a termination clause that outlines the circumstances under which either party may terminate the contract. This can help prevent disputes and ensure the termination process is fair and legal.
- Protect confidential information. Employment contracts should include a confidentiality clause prohibiting the employee from disclosing confidential information about the company or its clients. This can help to protect the employer’s intellectual property and business interests.
- Include notice period. The notice period refers to the amount of time an employee or employer must give the other party before terminating the employment relationship. The contract usually stipulates the notice period, which may vary depending on the nature of the employment relationship.
It is important to note that employment contracts in South Africa cannot override the provisions of the BCEA. Nor can they override other labour legislation, or collective agreements. A court will deem unenforceable any clause in an employment contract that is contrary to these provisions.
Ensuring this helps protect and look after both parties during the contract period.

To Conclude
Employment contracts are an essential aspect of any employment relationship. They establish the terms and conditions of the employment agreement, protect the rights of both parties, ensure compliance with employment laws, and improve communication and trust.
An employment contract may be verbal. But written employment contracts are not for when things are going well but for when things go awry. It gives all parties concerned a starting point for discussion. Without it, it becomes very much who said what, when and why. With nobody being able to agree on anything, and it becomes tough to sort out any dispute or to take any action against an employee.
Understanding employment contracts is crucial for both employers and employees in South Africa. An employment contract provides clarity and protection for both parties. It ensures compliance with employment laws, and can improve communication and trust in the working relationship. You should understand the different types of employment contracts and what they should include. This avoids misunderstandings or disputes.
You should take the time, spend some money, get legal advice and have a standard employment contract for all employees (even the family ones). This will save you time and money should things go awry with an employee.
If you are struggling to draft an employment contract or need legal advice. Verbeek Consulting is the right place to come to. Please contact us for more information on this, and one of our friendly practitioners will be happy to help.
Ultimately, a well-drafted employment contract can help establish a positive working relationship between employers and employees. Leading to increased productivity, job satisfaction, and success for both parties. Let us help you get there.